Quarterly Economic Report, Q4 2020
Key takeaways
01
Q3 marked the recognition of the US recession driven by the COVID pandemic.
The virus has dramatically impacted consumer behavior as shown with a 31.4% contraction of the GDP.
02
The Fed continues to support the market keeping interest rates low.
The fed is leaving the fed funds rate at the zero bound and targeting 2% inflation before hiking rates.
03
Low rates mean that corporations are issuing debt further out on the curve.
2020’s record debt issuance continued in Q3, even with major reductions in the commercial paper supply outstanding.
GDP: Official Recession
US GDP plummeted in Q2 marking an official recession (defined by two consecutive quarters of negative GDP), driven by the global pandemic.
Unemployment: Job Recovery Wanes
Unemployment peaked at 14.7% in April and improved to 7.9% by September, but the second half of jobs recovery is expected to be slow.
World Trade
Goods and services trade volume expected to worsen before bouncing back in 2021.
Corporates
Leverage supported by cash balance.
Historical Interest Rates
The Fed remains committed to the asset purchase programs and has said it expects no rate hikes before the end of 2023.
Record-Breaking Year for New Issues
US companies have issued more debt in Q3, extending the year’s record-breaking pace into the second half of 2020.
Relative Value: Credit, Treasury, MMF Yields
Short-term Treasury and government MMF yields are expected to keep trading in a very tight range as the Fed projects no rate changes through 2023.
Written and researched by SVB experts
