Fourth Quarter 2020 Global Outlook

Western Asset: Our base case outlook is for an elongated, U-shaped global economic recovery. Here, we provide a summary of key drivers behind our global outlook and describe where we see value across global fixed-income markets.

Executive Summary

  • Forceful policy action to date has buoyed global economic activity and restored market functioning, but we are wary of several potential disruptors: the upcoming US presidential election, post-Brexit trade negotiations, US-China trade discussions and geopolitical tensions.
  • While the US recovery story remains in place, we continue to see a bifurcated economy, with near-complete recovery in some sectors, but only partial recovery in those sectors most affected by social distancing.
  • In Europe, we now believe that the better-than-expected economic rebound underway in Q3 will run into more significant headwinds during Q4, mainly due to (local) restrictions intended to help contain second-wave COVID-19 infections and also due to fading fiscal policy support.
  • Prospects for Asia growth are much improved as key countries continue to benefit from both fiscal and monetary policy space, and by policymakers’ willingness to do whatever it takes to prop up their economies.

WHAT ARE THE RISKS?

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.