For professional investors only. Not for retail clients.
Philippe Lespinard, Head of Fixed Income; Mark Ainsworth, Head of Data Insights and Analytics, Investments
Schroders Webinar
Covid-19 and Fixed Income – The Data Science Link
Monday, 27 April 2020
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Covid-19 and Fixed Income – The Data Science LinkAgendaSpeakers
Philippe Lespinard
– Key risks and opportunities arising from the market dislocation
– Triggers to re-risk
– Stress testing – Sector / companies winners/losers?
– The unintended consequences of fiscal and monetary stimulus
– Exit strategy from this environment and implications for investors
– The Macro response and impact vs. the Micro response and impact
– Navigating the Covid-19 crisis with alternative data and techniques
– Can investors rely on the masses of mainstream data and news stories?
– Why statistician's and data interpretation is even more important now
Mark Ainsworth
Rate markets are priced for a depressionNear-zero official rates expected in major economies for the next three years
Source: Bloomberg. For illustration only. Not to be taken as recommendation to buy/sell.
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Credit markets are priced for a typical recessionCredit stress indicators are now well below the 2011 sovereign crisis levels
Source: Schroders, Bloomberg, April-20. For illustration only. Not to be taken as recommendation to buy/sell.
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% of IG market with OAS > 300bps % of HY market with OAS > 800bps
Credit markets are priced for a typical recessionRating agencies are also responding in a measured way
Source: Moody’s
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Investment grade rating actions
Fallen Angels rating actions
Speculative grade ratings – Ba1 to B1
Credit markets are priced for a typical recessionRating agencies are also responding in a measured way
Source: Fitch Ratings, as at April 7 20205
Weekly breakdown of Fitch rating actions
Epidemiology Model
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Goal is to allow us to ‘ground’ news flow into understanding of the disease and policy levers
If we assume the mortality rate (e.g. 0.5%) and the average time from infection to death (~15 days), we can infer that if 50 people died today then 10,000 people got infected 15 days ago.
Source: Schroders. For illustration only.
S – Susceptible E – Exposed (incubating)
I – Infectious (symptoms)
C – Critical(need treatment) D – Dead
R – Recovered
5 days 5 days 5 days
Mortality rate – ref 0.5% in China
Age profileChina
Age profilein country
5 days
R0
RHerd immunity
Italy is on the path to controlling the virus with R0* < 1
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Daily changes in modelled disease states and reported cases/deaths – Italy
With two ‘levers’ to pull (R0 before lockdown, strength of lockdown effect), our model can generate outcomes close to reality using the Google data.
Source: Schroders Data Insights, 30 March 2020. Forecasts included should not be relied upon and cannot be guaranteed.
Modelled disease states and reported cases/death – Italy
R0 under 1
*R0 is a term describing the reproduction rate of a virus in a totally susceptible population
Spain also has R0 firmly under 1
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Daily changes in modelled disease states and reported cases/death – Spain
Source: Schroders Data Insights, 30 March 2020. Forecasts included should not be relied upon and cannot be guaranteed.
Modelled disease states and reported cases/death – Spain
R0 well under 1
*R0 is a term describing the reproduction rate of a virus in a totally susceptible population
Sweden – a natural experiment
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Sweden – IFR 1.0%
Sweden’s lockdown has been too modest to drive a reversal of cases under our assumptions, and infections are too low for Herd Immunity.
Source: Schroders Data Insights, 30 March 2020. Forecasts included should not be relied upon and cannot be guaranteed.
1
10
100
1,000
10,000
100,000
22 Jan 05 Feb 19 Feb 04 Mar 18 Mar 01 Apr 15 Apr 29 Apr 13 May 27 May 10 Jun 24 Jun 08 Jul 22 Jul
IC - Critical todayCD - Die todayNew DeathsNew CasesStart of Model
Sweden - IFR 1.0%
Source: Schroders Data Insights
Japan’s statistics now imply R0 of 1.3 or higher
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Japan – IFR 1.3%
Cases are more concerning than from Deaths so far – whether this is driven by testing or situation on the ground will become clear in 1–2 weeks.
Source: Schroders Data Insights, 30 March 2020. Forecasts included should not be relied upon and cannot be guaranteed.
1
10
100
1,000
10,000
100,000
22 Jan 05 Feb 19 Feb 04 Mar 18 Mar 01 Apr 15 Apr 29 Apr 13 May 27 May 10 Jun 24 Jun 08 Jul 22 Jul
IC - Critical todayCD - Die todayNew DeathsNew CasesStart of Model
Japan - IFR 1.3%
Source: Schroders Data Insights
R0 ~ 1.3(NB assumed reductions going into summer due to temperature effect)
*R0 is a term describing the reproduction rate of a virus in a totally susceptible population
Alternative data on the effects of Covid-19
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UK usage of Citymapper and Google maps, rebased to 2016
Coverage of apps both inside China and Worldwide
Source: Schroders Data Insights March 2020. For illustration only. Past data is not indicative of future data and should not be relied upon as recommendation to buy/sell.
China, usage of navigation apps. Was 35% off pre-lockdown at lowest, now 20% off peak (nationwide numbers, using Amap/Baidu Map)
Alternative data on the effects of Covid-19
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China traffic congestion – Beijing just as busy as normal during commuting hours though very quiet off-peak / at weekends
The nature of China’s recovery so far by region
Source: Schroders Data Insights March 2020. For illustration only. Past data is not indicative of future data and should not be relied upon as recommendation to buy/sell.
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Source: Schroders Data Insights Unit, September 2018. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.
Market share for merger of United Rentals with BlueLine Rental
Geospatial data Mapping out the potential
BlueLine: an attractive proposition for
a merger based on number and
location of estates.
September 2018: United Rentals
announced the acquisition of BlueLine.
Merger predicted based
on analysis of location and number
of construction starts.
Store count
842
122
0 100 200 300 400 500 600 700 800 900
United rentals
Blueline rental
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Source: Schroders Data Insights Unit, September 2018. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.
MUSEMunicipal US
Sustainability Explorer
Provides a structured lens
through which to better understand
sustainability risks and
opportunities between counties.
Human Capital
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UK Financial vs. Peers
Creating comparable insights on boardrooms and governance
Source: Schroders Data Insights Unit, May 2019. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.
Cont. European Financial vs. PeersMax. overboarding
Proportion
of female
Average age
Board Directors
Proportion of external
career moves
Num. of
career moves
Average
overall tenure
Peer group
UK Financial example
Proportion
of female
Average age
Board Directors
Proportion of external
career moves
Num. of
career moves
Average
overall tenure
Peer group
Cont. European
Financial example
Max. overboarding
Looking forward: this will not be a typical recovery
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Public policy will now have to balance:
As this is not a typical recession
V, U, W or L? More like a ®
Source: Schroders Credit Research. For illustration only. Not to be taken as recommendation to buy/sell. Swoosh courtesy of Nike
– Monetary policy: acts very quickly, in large size– Fiscal policy: acts quickly, can be in large size– Economic policy: moves slowly and in moderate size– Social policy: moves very slowly and incrementally
HIGH Telecom Media RE - Retail Universities
MEDIUM Travel Airports Gaming
MEDIUM Non food retail RE - Office Services RE - Logistics
LOW Leisure Healthcare Insurance Banking
LOW Consumer goods Autos Oil & Gas Metals & Mining
LOW Chemicals Capital Goods Building Materials
LOW Food retail Utilities RE - Residential
ANALYST ASSESSED PROBABILITY OF STRUCTURAL CHANGE POST COVID-19 LOCKDOWN
Policy changes will induce structural changes:– Consumer behaviour– Corporate investment – Political activism– Investor behaviour
Important information – Global audience
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The views and opinions contained herein are those of the authors as at the date of publication and are subject to change due to market and other conditions. Such views and opinions may not necessarily represent those expressed or reflected in other Schroders communications, strategies or funds.
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Important information – Global audience
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Important information – Global audience
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