This document outlines the Macro View Bond Group's 2021 fixed income market outlook. It highlights several key themes and headlines for 2021, including record levels of municipal and corporate bond issuance in 2020. It also discusses the Federal Reserve's continued accommodative monetary policy stance in fueling the economic recovery, the potential for rising bond yields as growth and inflation come into focus, and ongoing credit quality concerns in light of the pandemic.

1. 2021 FIXED
INCOME MARKET
OUTLOOK
Fixed Income Strategies Tailored to any Investor
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2. HEADLINES
WE ARE
WATCHING IN
2021
Muni and Corporate Issuance –
Record Year
Federal Reserve – Fuel For The
Recovery
Rising Yields? – Growth and
Inflation in Focus
Unified Government – Fiscal “Shot In
The Arm”
Credit Deterioration – The
Quality Premium

3. FEDERAL RESERVE – FUEL
FOR THE RECOVERY

4. At the onset of the pandemic, the
Federal Reserve performed two
emergency rate cuts, slashing the Fed
Funds Rate to 0 to maintain orderly
credit markets. Fed further pledged
accommodative support via form of
open market operations
Fed Balance sheet expanded to
$7 trillion – was $4 trillion prior to the
pandemic. Total stimulus provided in
first 2 months of pandemic eclipsed
total of all 3 QE programs enacted
in 2008-09
FOMC telegraphed zero-bound
Fed Funds Rate through at least 2022,
current market expectations pricing in
low rates through 2023. Fed committed
to low rates to stimulate demand and
economic activity

5. UNIFIED GOVERNMENT -
FISCAL “SHOT IN THE ARM”

6. Congress passed $900 billion stimulus in late 2020.
Additional stimulus focused on infrastructure and
efficient vaccine distribution is expected to be
top priority for Biden administration
Direct aid to state and
local governments
through infrastructure
package will be very
constructive for
municipal market
Both stimulus packages projected to add 0.5% to
US GDP in 2021 and 0.3% in 2022. Would be
higher if health outcomes related to COVID-19
improve quicker than expected

7. RISING YIELDS?
GROWTH AND
INFLATION IN FOCUS

8. Long-Term Treasury yields reached
firm, near-term bottom in August,
around 0.55% on 10-year and
1.2% on 30-year maturity
Since then, Treasury yields rose
with stimulus and vaccine expected
to aid economic recovery. Short-term
yields remain unchanged as FOMC
anchored key policy rate to 0.
Steepening yield curves usually
precede economic recovery
Over same timeframe, 10-year
TIPS/Treasury Breakeven has risen
above 2%. In September 2020, Fed
Chair Powell introduced new policy
framework where Fed will allow
inflation to run above 2%
target before hiking rates to
control inflation

9. MUNI AND CORPORATE
ISSUANCE – RECORD YEAR

10. Municipalities set annual record
in 2020, over $450 billion in
total issuance with $137.8 billion
taxable (largest year in taxable
municipal issuance since 2010)
Issuance was met with ample
demand, bringing ratios of
municipal yields versus Treasuries
near all-time lows
2021 municipal issuance projected to
increase slightly over 2020 total.
Given low yields, we expect
borrowers seeking to advance-refund
debt to continue driving trend in
increased taxable issuance

11. Corporate bond issuance totaled over $2 trillion in 2020, a 60% increase over 2019,
shattering the previous annual record. Corporate borrowing is projected to slow in
2021 as stimulus measures and growth will lift interest rates off historic lows
Corporate Issuance

12. CREDIT DETERIORATION –
THE QUALITY PREMIUM

13. Despite optimism created by stimulus and vaccine, credit deterioration remains a
concern for many corporations. Per Bloomberg, there were 244 U.S. bankruptcy filings
by companies with more than $50 million in liabilities in 2020, most since 2009
Corporate Issuance

14. Credit also a concern in municipal
market. S&P downgraded 413 municipal
credits versus 20 upgrades from March
31 – September 30, 2020, led by airports and
senior living facilities. However, most
municipalities built up robust reserves
during preceding economic
expansion to withstand slowdown
Higher, investment grade credits were
rewarded with better performance in 2020.
The quality premium manifested itself
in fixed income markets as economic
uncertainty was elevated for most of the
year (bottom chart shows corporate bond
performance)

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Through MBG, Advisors can
leverage our fixed income
expertise to bring
enhanced personalization and
returns to each of their client
relationships.

16. GET IN TOUCH
WITH US
MAILING ADDRESS
4800 Hampden Ln Suite 200
Bethesda – MD 20814
United States
PHONE NUMBER
(301) 907-6795
E-MAIL ADDRESS
info@macroviewim.com