April 14, 2020 | By Hank Cunningham
The global economy has entered a recession and the primary questions are: how deep will it be and how long will it last?
There are no answers to these questions and there won’t be until we see the end of this pandemic. Concerted massive monetary and fiscal stimulus has been introduced throughout the developed world. With monetary stimulus at its maximum, the onus has fallen on the various fiscal stimulus measures. The massive programs announced thus far should help to bridge this period when revenues and incomes have mostly ground to a halt.
Interest rates and bond yields are low and will remain so. The Fed has breathed life into the corporate credit market but there will likely be widespread downgrades as well as a pickup in corporate defaults. There will also be a tsunami of new government bond issues to fund the various stimulus packages. Since we are in a disinflationary world, such issuance will not push bond yields higher in the near future. Ultimately, there will be inflationary consequences but that is a long way off.