This is Debbie Cunningham Chief Investment Officer for Liquidity Markets at Federated Hermes.
What is your outlook for liquidity markets in the coming months?
Although it's not really been confirmed yet officially, we all know that the US as well as the world is in a recession. With the second half of March really pushing the US into negative territory, the real question at this point is, how long does this recession last and what shape does it take? For Federated Hermes, our base case scenario is that the recession will be a U-shaped recession. Not an L, not a V, but a U-shaped recession. What this actually means for liquidity products is good.
It means that the period of time that we spend in the zero rate environment, unlike the time frame from 2008 to 2016, will be measured in quarters and maybe a year or two at the most, but not many years up to it including almost a decade. One of the differences also with a U-shaped recovery, is that we would expect our spreads to remain wide based on the fact that there are lingering concerns about credit quality issues. And whatever happens from a virus perspective, and the further complications that might come from that. So, the two differences mainly are what put us into this recession versus what likely is still a fear factor induced by the virus in this recession.
Disclosure: Views are as of 4-29-20 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. Federated Investment Management Company. 20-40222 (5/20)