Capital Ideas

Investment insights from Capital Group

Fixed Income
Elections and a vaccine: Implications for fixed income investors
Jared Franz
Thomas Hollenberg
Fixed Income Portfolio Manager
Damien McCann
Fixed Income Portfolio Manager
  • Despite the vaccine announcement and US election results, the economic recovery is likely to remain bumpy.
  • Monetary policy will remain accommodative, helping to keep rates low and the yield curve flat, providing a cushion for risk assets.
  • The outlook for credit assets remains positive, including US high yield and select emerging markets debt.


The US election results and the announcement of a potential COVID-19 vaccine from Pfizer have been pivotal events in markets, initially providing a substantial boost to risk assets. Mixed economic data and a rapidly rising rate of coronavirus infections have since tempered investor enthusiasm. We took stock of macroeconomic conditions and prospects for fixed income investors with three of our investment professionals: US economist Jared Franz and fixed income portfolio managers Tom Hollenberg and Damien McCann. Below are adapted excerpts from their recent research notes.


Economic outlook: Jared Franz, US economist

We are seeing a modest economic recovery in the US. With fiscal support getting largely exhausted and prospects for a second fiscal stimulus package still uncertain, the pace of annualised GDP growth could slow in the fourth quarter towards 3% or lower. Stubbornly high levels of jobless claims near 709,000 also suggest the economic rebound is stalling. Nevertheless, Pfizer’s recent announcement of an imminent vaccine improves the prospects for economic growth in the next couple of years. 

Through the summer and autumn of 2020, the US economy has been experiencing sub-par economic growth. Activity in several important sectors — airlines, hotels, entertainment, cruise lines — has been anywhere from 20% to 60% below the levels that prevailed before the outbreak of COVID-19. The prospect of an effective, safe and durable vaccine could short-circuit this negative feedback loop and release pent-up demand. Should some sort of herd immunity take hold in the second half of 2021 with the impact of a vaccination, it could create a step-up in the GDP growth outlook to 3% in 2021 and 3% to 4% in 2022.

The challenge is that, despite the announcement, a vaccine could still be at least six to nine months away, and its efficacy has not yet been fully established. In the meantime, fiscal and monetary policy must fill the gap. If CARES 2.0 runs into a logjam, any near-term growth hiccup will have to be filled with a "whatever it takes" monetary policy easing by the Federal Reserve.

On the positive side, despite the COVID-19 flare-ups, consumer spending has shown resilience, especially in areas like autos. While we may see a softer holiday season over Christmas, spending could pick up again in the spring once we are past the winter season, when viruses tend to flare up.

A point I’d make as we try and calibrate the policy framework for 2021: There’s a big difference between the environment following the Great Financial Crisis of 2008 and the post-COVID economy. The latter has a clear human cost and extraordinary damage to some of the most vulnerable populations in our society, regardless of political affiliation. I believe that policymakers won’t be able to ignore that aspect, and there will be pressure to provide additional fiscal support.

Jared Franz is an economist with 15 years of industry experience. He holds a PhD in economics from the University of Illinois at Chicago and a bachelor’s degree in mathematics from Northwestern University.

Thomas Hollenberg is a fixed income portfolio manager with 15 years of industry experience. He holds an MBA in finance from MIT Sloan School of Management and a bachelor's degree in economics from Boston College.

Damien McCann is a fixed income portfolio manager with 19 years of investment experience. He previously covered energy, leisure and lodging, and rail companies as a fixed income investment analyst at Capital Group. He earned a bachelor’s from California State University, Northridge and is a CFA charterholder.


Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.