covid-19 and fixed income the data science link...for professional investors only. not for retail...

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


Modelled disease states and reported cases/death – Spain

R0 well under 1


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.


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.


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)


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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covid-19 and fixed income the data science link...for professional investors only. not for retail...

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