Welcome to today's insights from Northern Trust Web and R. My name is Katie Nixon and I'm the chief investment officer for wealth management, and I'm going to be your host for today's presentation, and I'm very excited for our two guests to share insights today on the high yield market as well as on the latest developments and observations related to the COVID-19 outbreak. Please note that today's presentation is being recorded and you'll be provided with the details for accessing the recording at the conclusion of today's presentation. Now just a reminder. If you have any questions for our speakers, please submit submit them through the QA widget on your screen. Or you can send it to contact northern at northerntrust.com. All lower case. And please please do submit questions on. We've been getting lots and lots and lots of questions on these calls and we really want to make sure that we're covering the material that's of most interest to you before I start the call, I just want to simply say that as the days pass. We're seeing the incredible impact of the COVID-19 outbreak. It's having an impact on our society on peoples, families, friends and loved ones. Everyone really around the world is being impacted, directly or indirectly, and we can expect that things will remain challenging. In our communities, we're seeing that this crisis can also bring out the best in people here in New York where I sit, I we've had over 40,000 retired healthcare professionals answer their Call of Duty and sign up to meet the expected surge in demand. We're hearing of individuals and companies rallying to make protective gear for caregivers and retrofitting machines to make what is in desperately short supply. Ventilators were saying generosity, bravery and resolve. We are, quite literally, all in this together, and we're going to get through this. Together, hope is actually written a bit that perhaps Italy is reached and maybe even breached the peak in the growth of new cases. And we're reminded once again that containment measures do work as we are seeing a slowdown in new cases in Seattle. As you all probably know, President Trump Yesterday stepped back from his optimism of restarting the US economy by Easter, and he reinforced the CDC guidelines around maintaining social distancing. Another mitigation measures to the end of April, so stopping the spread, flattening the curve here in the US remains the most important goal. So with that as a backdrop, I'm so pleased to introduce our distinguished panelists, which includes our directory or fixed income strategy, Brad Camden, who's going to talk us through some of the gyrations? In the taxable fixed income market, and we're also so pleased to be joined today by Doctor Cavite Trivedi, she's an epidemiologist in an epidemiologist. In other words, is it like a disease detective who studies causes of diseases and determines how to stop or control transmission? Doctor doctor to VD is a founder of Trivedi Consult LLC. She's an attending physician at the San Francisco Veterans Administration Medical Center and a consultant for the World Health Organization. Her health care consulting focuses on quality improvement through strengthening local infection prevention and control. An antibiotic stewardship programs. Her clients include American Institutes of Research, Partnership for quality care and the Centers for Disease Control and Prevention Foundation. She received her medical degree from Stanford, completed her residency in internal Medison at the University of California in San Francisco, and she is board certified in internal Medison, and she has graciously offered to enlighten us today on some of the. Updates related to the Cove in spread into answer. Some of our questions. We've got a lot to cover today. So without further ado, I thought we would get started with Brad Brad. We've seen the credit markets incredibly volatile over the last several weeks, dealing really with a 1 two punch of the direct impact of the Cove at 19th spread, as well as the steep decline in the price of oil. So we really welcome you to the call this morning to help us sort it all out, and so I'm going to hand the call over to you. Thank you Katie. I'm gonna start my presentation on slide #5 titled Credit spreads increased at unprecedented speeds and what you'll see here all the way to the right is credit spreads. Have blown out quite significantly in relation to the Culver 19 epidemic. The question that we're getting is why particularly look at past crises. Looking at this chart back in 2002 to 2000, four 2008, two six 2010 the global financial crisis, even European sovereign debt crisis of 2011 and 2012, and the most recent oil crisis. Katie as you mentioned. And that those periods took several months if not a year, year and a half today. Spreads had blown out almost instantaneously over the last couple couple weeks, and that's mainly due to liquidity. And so when you think about what's happened, particularly over the invite with the environment we had for last 10 years where it's been slow growth, low inflation, a Comedy Central bank policies, people reach for yield, they reach for yield in the credit markets in particularly high yield market. And now that's something we had an exogenous shock people are. Concerned, and they're trying to sell what they can and get like liquidity and put cash back into the coffers so liquidly is driven spreads wider. That's been noted with basically 100 billion dollars of outflows over the last month in the investment grade space. An all time record about 20 billion of outflows in the high yield market. Another all time record. And most importantly, unlike the global financial crisis, we have seen significant issuance from investment grade issuers. We had one hundred 110 billion of issuance last week and quarter date as another record, so. Not only are people withdrawing funds from the market, their issues are also coming to the market and putting pressure there in deep new issue concessions as result spreads have widened significantly just to give an indication where we stand today in high yield market we have an oas spread of 922 basis points. That's about 180 basis points off the wide witness last Monday and then in any investment grade side we have spreads right now, about 275 basis points, about 80 basis points off the whites witness last week. Of about 355 basis points. Turning to slide number six, would I find unique is? What events are actually selling is counter intuitive on the surface. Here it looks like double bees have outperformed triple CS, but the reality is, is that on a risk adjusted basis, double B700 performed quite significantly. So looking at the slide, which is high yield quality, performance access returns here to date. You'll see that double be access returns are negative 17.7% and we compare that to triple C returns of negative 25.6%. It looks like double bees are doing fairly well. However, it's important to note that double bees have alot of having analyzed volatility number about 5% compared to triple fees about 9%. So if we were to, all things were created equal, we would expect triple C's to have a negative access return of over 30%. So double bees are actually doing fairly well. Why is that? Well, across the high yield universe as well as the investment grade universe investors are selling what they can and what they could sell were higher quality issuers. And so we've seen a significant spread whining and double bees over the last month or so. And that is on their most witness on flight number 7. Flight number 7 titled Higher quality credit to have underperformed. This is a ratio going back to 2007. Triple Steve versus double bees and over the last 10 plus years at the average 2.49 two point 2.49 times. But a month and a half ago we were out talking with clients and saying there was significant opportunity to move into the Triple C space. In fact, going from double bees to triple C's, you can pick up with five times the spread quite significant. But it's not a trend that you know just came out of the blue. The last I would say last couple years investors had been more cautious going back to the 2015 2016 while crisis investors took some pain and have been staying higher, quality issuers and that was exacerbated after the fourth quarter of 2018 we saw something that can draw down. But what's interesting now is that with this with this crisis or Kobe, Kobe 19 epidemic is that. This is saying what they can. These tightly price double bees and now the ratio almost overnight has come back to more normalized term. So what does that mean for investors? That means that their significant opportunity and higher quality high yield much more so than there was just a few weeks ago. And that's all because of the liquidity issue. However, with that said, there are some significant impacts on either Syncratic side, and there will be will talk a little bit about default rates here in a second, but. Going to the next slide slide #8. You know it shows how has the sub sectors performed over the last over here over the years today. So we're almost to the end of the first quarter where you can see here is that for the most part absent energy, which I'll get to in a second and a couple of the other sub sectors that are directly impacted by the crisis, is that it's relatively uniform and so everyone selling off for liquidity reasons. It's not idiosyncratic. In fact, if you look at the US corporate high yield market, which is the 5th from the bottom. Most sectors are outperforming the global, the broader market, so that's important to note that showing that this is a liquidity crisis, not a credit crisis. Enerji is different, though we've had some economic warfare from Saudi Arabia and driving driving the price of oil today down to 19 plus dollars a barrel, and that has some significant implications on the energy producers in the high yield market. And we expect some significant defaults there, but that's now priced into the overall spread level. But energy is down quite significantly down 4045.8% year date through last Thursday. That's the broader sectors. Let me, let's talk. Let's talk quickly about our expectation around default and what the market is pricing in. And there's on slide #9 titled to the fall rate continues to rise and driven by the energy sector. When you see when you look at this graph, you'll notice that there's a blue bar going across, and so there's a long run. Average default rate is about four point 1% as of the end of February, the trailing 12 month Valerie was 4.5%. This compares back to 2000 one 2002 prices of 12% 2008 2009 crisis of 16% default rate. So the question is where do we expect the following to go from here? Well, we expected to go up. But to be in the range of nine to 12% over the, you know trailing 12 month basis. It's not going to go up to in our in our estimations not to where it was in 2000, eight 2009 and I'll get into that in a second, but it is expected to rise somewhere in the rankings. As I said, some of the major 9012% X NRG. And somewhere in the six 8% so energy will enerji will drive it with the false will go up double from where they are today. The other thing I'll point out here. Is that there has been some significant rating actions just there. The physical monetary policy mix have taken some dramatic actions, so too has the rating agencies over the last two weeks. We've seen the fastest amount of issuers downgraded and certain in that window in history, and also some significant fallen Angels like Occidental Petroleum and Ford Motor Company. Here. Today we had about 105 billion fallen Angels and expectations this year on the range. 200 to 215 billion so about halfway there. But we still have some room to go. And flight number 10. It shows the high yield, debt maturity and how high yield issuers have extended the maturity profile. Now one of the reasons why we expect the false to remain below historic norms during crises periods is because management teams have done an outstanding job of maintaining balance sheet flexibility in terming out their duration, profile of their debt. And So what you can see here is that in 20 twenty 2020 we don't have a significant amount of refinancing activity that needs to occur. And that's a good thing, particularly challenging environment. This so, so corporate management teams issuers have a lot of leverage, the pole and they will use them to maintain so they think it could be a going concern and stay out of default. The other thing I'll point out is on slide #11. How you'll leverage just another indication here. Leverage ratios are back to where they were just ten years ago prior to the crisis and so, well, there's been lots of talk about issuers levering up that has really occured in the investment grade space in higher quality names a or better in high yield space management teams and Thunder. Good job of maintaining balance sheet flexibility to decide then very disciplined. And if apparently preparing for a rainy day like this. And so you'll see here that leverage right now is about 4.2 times that compared to where we were in the first quarter of 2008 to 4.2 times. So lots of flexibility here. A lot of leverage. The pole as a result, when you look at the why we sold off from liquidity standpoint, the default expectations and what's currently priced into the market. Right now we have about 40% of the market. Trading is expressed distrust levels that we think that's too much. It's particularly with our view that defaults were being at nine 12%. You look at current valuations where oas is now 922 basis points higher. The high yield market looks attractive. And what does that mean to us? That means that we're forecasting spreads to be an average around 600 to 625 basis points over the next 12 months, and that means a total return and the 15 to 16% range. Now, I understand that there's still a lot of unknowns. And there's lots of uncertainty around the virus in the economic impact it will have, but with the information we have today, and that's what we're expecting in most importantly, we know that the driver returned in the high yield market is income vilta worse, right now is about 10%. If nothing changes, then we are in the same type of spreads, remain stable, will earn 10% over the next 12 months, so. Lots of uncertainty, but also lots of opportunity for investors. Particularly high yield market. And with that said Cadia, I'll turn it back to you. Great bad. Thank you so much. Lots of great information there, and we've already gotten a number of questions, but I'm going to hold off on the questions until the end because I want to transition now to doctor Cavite Trivedi an again doctor were so delighted to have you here with us this morning to help us sort through. What is really sort of a firehose of information related to the coronavirus spread an most importantly to address some of our clients main concerns, which is really how to protect themselves and their families. So I will hand it over to you doctor and again very very grateful to have you here with us. Thanks, happy to happy to be here. I'm going to start on slide number 13 so I submit these slides. Northern Trust last week an there already out of date but I think it illustrates a very interesting. Point about the numbers going up every every single day, and really every single moment. So as of last Friday I had put in the side at The Who reported 576 thousand confirmed cases with 26,000 deaths and at least 170 six countries around the world. That number has now risen to 741 thousand cases with 35,000 deaths. So just in three days we have. Added to that number almost two 200,000 confirmed cases, the USC DC is currently reporting 143 thousand. Kate confirmed cases and 2500 deaths. Most of these, as you know, are coming out of New York City. Thus far, I do want to make sure you all are aware when you're looking at these numbers. A couple of things. Number one, the severity of the cases is. Varied right, some of these cases are quite severe and critically ill in the hospital and others are miles and sitting at home so you can't glean that information from looking at these numbers. Secondly, there are many places that are still having a lot of difficulties with testing, so these numbers also do not include the many people that we believe in this country and across the world have symptoms of COVID-19 but have not been tested. Let's go to the next slide slide 14 so I'm sure you all are aware we are calling the disease COVID-19. But the virus that actually causes this diseases SARS Co V2, which is a coronavirus. What we understand currently about transmission is that this virus spreads person to person via respiratory droplets that can get into your eyes, your nose, your mouth and can cause infection. I want to highlight your eyes. That is one place that we are really trying to emphasize, especially in our healthcare settings to cover your eyes. So I would. Strongly suggest if you do end up meeting to go out and about wear sunglasses, try to cover your eyes as much as possible because these respiratory droplets can get into your eyes and infect you through your eyes. The other point to make is that we're learning more and more that the virus can remain in the air for a period of time. There different estimates between two and six hours. So that means that if you are walking down the street and someone before you in that same. Area that that is walking down the street has coughed, and he walked through that same error, and there has not moved. It is possible that you could be infected with respiratory droplets that may have been. Put into the environment at that time so it can remain in the air for a period of time, and the last point is about fomites, so fomites are any objects where a sick person saliva has gotten on the object. So and then when people touch those objects thinking then transmit infections to themselves. So we're talking about anything from light switches to hand door knobs to pens or your mouth. Any digital devices right there. Any of these things can serve as fomites, and we're really trying to emphasize to people that these fomites can also transmit disease. I'm going to go to the next slide slide number 15. The good news? I shouldn't say that good news yet. SARS Co V2 can live on many surfaces for quite a long period of time. We have some data that the virus can live on plastics and stainless steel and glass for up to 72 hours. The virus can also live on Cardboard for up to 24 hours. The good news though, is, is that the viruses easily killed with. Bleach and any solutions, but at least 70% alcohol. So even though it can remain on these services, you can get rid of them by disinfecting. Will go to the next slide slide #16, so in terms of symptoms, I think most of you have heard this in the press. COVID-19 symptoms are pretty broad and general for respiratory illness. Most people are presenting with cough, fever, and headache that seems to be the triad, at least in the West Coast. Most people have mild symptoms. About 80% of those that are presenting to their doctors. Um have mild symptoms and do not require hospital care, so these people are definitely in their home. Is recovering on their own 14% of patients with COVID-19 have severe disease and are requiring some sort of hospitalization. And then 6% of the patients with covad are critically ill and require Ventola Tori support and a critical care bed an ICU bed. We have exhausted many of these resources currently in New York City, and as you probably know, we're trying to make more ventilators and double our capacity in terms of surge beds across the country. But what's important to know is that these symptoms are typical for many other respiratory illnesses. So it may be difficult to determine if a person has COVID-19 over another respiratory illness because the symptoms are so similar. Next slide we're going to slide #17 asymptomatic spread. So actually if you only remember one thing from my brief presentation, I would really like you to pay attention to asymptomatic spread. I think this is something that is not being emphasized as much in the press. But you really need to remember that people who are sick can show no Simon Signs and symptoms of disease, but they're still infectious, so there's some data in fact, that people may be more infectious before they show any signs of disease. In one study, more than 10% of the patients that were eventually infected by somebody. With infected by somebody who did not have any symptoms at the time, so this is one of the main reasons that we are advocating for physical distancing, and it's a very good idea to avoid crowds, because again, there may be people that don't even think they're sick but are actually shedding virus an are infecting other people, so this is probably why this virus is so insidious and so difficult to manage. Because of this asymptomatic spread. Will go to the next slide slide, #18. So in terms of prevention, there are again lots of good information coming out of CDC and WHO another other public health organizations. It's important not to touch your face. It's important not to touch anyone else's face. If you must touch someone else's face like your child or your loved ones, please wash your hands first, wash your hands for the 20 seconds, as as indicated, the other thing we're advocating for is to not share food, utensils, cups, or towels in our household. Each of my children has their own towel everybody. If they start eating food, that food is that not shared. That food and their plate. They have to finish. So please try to not share your food again. If you have the virus in your saliva and you're not even feeling sick, that saliva can obviously get on anything that you're eating. Anything you're wiping your mouth with any area that you're talking. In fact, right? So be really careful not to share any of these personal items. One thing I'll just note as a side in China and Italy, there are many intergenerational families where virus blew through an entire family where a child would have infection and then it would. It would go through the family between the parents and then all the way to the grandparents in the grandparents were obviously the ones that were at highest risk. So we're trying to kind of stop that transmission by not sharing personal hygiene items. Try to open and close any doors, elevator buttons with your elbows or your shoulders if possible. And as I already said, make sure to clean your hands often with soap and water. There are many good YouTube videos on how to wash your hands. I would encourage all of you to look at those videos because the way we typically wash our hands is not not getting our thumbs are poms. Are the ends of our fingers. We also want to wash our hands pretty much. After any type of action you taken, so after you've been in a public place, after you blow your nose after you cough for your sneeze. So all of these things should trigger you going to wash your hands. And the last thing I want to mention his hand sanitizer so if you soap and water is not available inside hand sanitizer is the next best option. And if you can't make your I can't find hand sanitizer which many of us are having trouble across the country right now. You can certainly make your own hand sanitizer using isopropyl alcohol and aloe Vera gel. Will go to the next slide. Slide number 19. So in terms of cleaning and disinfection, we are advocating for both cleaning and disinfecting frequently touch services daily, so these were to include again those fomites, those objects that people touch all the time. Countertops, handles, desks, phones, toilets, faucets, sinks, tables, doorknobs. All of these things we really need to be cleaned daily in your home to prevent infection. And when we talk about cleaning, we talk about it. The surface is dirty, making sure you clean them so the service is no longer dirty. You would use detergent or soap and water and then the second part is disinfection right? So you clean a surface and then you disinfect the service and when you disinfect the surface you need to use a disinfectant and there are a list of common EPA registered household disinfectants that can be found on the EPA website that will work against this particular virus, so I would encourage you to look at that disinfectant list and make sure you're using one of the disinfectant. Disinfectants that is active against this. This novel coronavirus. And then the last piece of cleaning and disinfection is given at the information I gave you earlier about the virus living on plastics and Cardboard for between one and three days. You really need to try to be careful with groceries or take out any online purchasing. So there again, some really great YouTube videos on how to handle groceries in the Kodera so you know you'll see a lot of people at the grocery store with gloves. You'll see people taking all of their items out of their bags and disinfecting them before they put them in their cupboards. This goes for take out as well. Being really careful, careful, careful about the Cardboard that they take out is coming in other plastic trying to take it out of those those. Those. Those plastics and Cardboard and making sure that you eat them not directly out of the Cardboard but out of out of your own, your own cups and plates and this also goes for online purchasing. One best practice that we have in my household is any items that are coming from Amazon or UPS or FedEx. We're leaving in the garage for up to 24 hours and then we're handling them after that after we're more confident that there is. Less virus on those those items and I would also recommend this for Mail as well. Will go to the next slide slide, #20. So all of these measures that we are taking our an end. Trying to flatten the curve as you all know and this term, I'm really happy to see is being used very widely. So what we think about flattening of the curve is if we all take action we can limit the rise of new cover 19 cases and Katie mentioned earlier that we may potentially be seeing a decrease in cases in some of our. Neighboring countries that are also dealing with this infection. The protective measures that we need to put in place to be the purple curve on this graph and not the pink curve which is the one without any intervention, are the things we've already talked about. Personal measures such as the hygiene and safety measures I mentioned, staying 6 feet away from other people at all times outside of your direct home. Physical distancing. I know you all are hearing social distancing and the news. Some of our psychology colleagues are worried about using the word social distancing. So we're trying to use the word physical distancing more, or we can still socialize over the phone and over, you know. Tele calls and then environmental measures. As I already discussed, cleaning and disinfecting services as well. So if we all take these protective measures as a whole as a community, as a country, we can then hopefully expect to be the purple curve and still stay under the capacity of our health care system now. And some places we are getting very close to the health care system capacity like NYC. But certainly we are very large country and we're hoping that some other places. They have put in some of these measures. These protective measures early on will see a not as high risk high. A increase in number of cases. Will go to the next slide, #21. So, uhm, I. I'm assuming that most of you on this call or or do fall in this category of being a high risk person, so a high risk person in terms of this particular pandemic is somebody who could have complications from COVID-19. So these are people who are older than they just 60, and people who have underlying health conditions. So what? I would encourage all of you to do is to try to. Really physical distance yourself. Learn about how to order groceries online and do shopping on line and really try to protect yourselves right now. The other thing I think to think about is if you happen to usually take care of grandchildren, this would not be the time to do that. At this point we really need to watch out for are high risk individuals are older generation. So it encourage you to really take very careful measures on taking care of yourself. Don't hesitate to reach out to a neighbor or family member to help do groceries for you if you need that as well, slide #22. So I'm going to just touch on this. Unfortunately, there's not a lot of information here on treatment in vaccines. All the information we have right now in treatment is only in vitro studies and anecdotal data. Currently there are no FDA approved therapies. We have unfortunately been hearing about some people hoarding some particular antibiotics or doing some other things that the late press is advocating for, and I would just encourage you to understand that we really do not want any of you to be taking any of the therapies that are being discussed. Unless it's under the guise of a licensed practitioner. In terms of the treatments that are currently in clinical trials, one is ram desert here, which is. An anti viral that inhibits viral replication. Currently in clinical trials. So if you are infected with this virus and happened to be in one of the hospitals that is engaged in one of these clinical trials, your loved one might receive this. This antiviral, the other drug that is also being research is hydroxy chloroquine. This is a drug that has been out there for quite some time. Treating malaria and other autoimmune diseases, it inhibits. Viral entry and release and currently some institutions are considering this drug for high risk patients, so those patients that are over the age of 60 have underlying health conditions and are also critically ill again. So this is not something that I would want you to take if you are in a mild, have mild infection. One thing to note is that there are some severe cardiac side effects and it can occur with hydroxychloroquine, so this is not something we want, just the general public to take, especially for things like prophylaxis. The current focus in terms of treatment is unsupportive treatment and I junked if treatment. So what we're doing is we're trying really trying to support the patient to get through the viral illness. This is often what we do with viruses and that is the mainstay of treatment currently, especially in United States and all over the world. In terms of vaccines, there's a lot of talk about vaccines. There are two vaccines in clinical trials, one in phase, one clinical trials and another one in pre clinical trials. There are probably another 18, I believe vaccines that are under development in many different pharmaceutical companies. We are assuming that one or more of these vaccines will become available in 12 to 18 months, but I will caution you that there are a number of things that could happen by the time a vaccine is available. Number one, the virus could have mutated such that the vaccine that we've developed is for the virus that is no longer circulating in the population, and sometimes those vaccines don't work. This is a brand new vaccine for us, so we can somewhat hanger hopes on a vaccine in the next 12 to 18 months, but we may need to find another alternative in terms of treatment, which is also being being studied at the current time. So I'm going to end on flight number 23. These are just some take home points from what we discussed. Number one this pandemic has widespread implications. I think Brad also discussed the economic implications of what's happening. We also have to acknowledge the mental an emotional implications of this virus, and I would encourage you to take care of yourselves in any way you can. Things like not smoking things like exercising, eating well. Trying to do something enjoyable every single day to really keep your spirits up is going to be very important for us to get through this as it's looking like more of a marathon than a Sprint. #2 vulnerable populations are really those that are 60 years of age and older, and those with underlying health conditions. I would really encourage anyone in these vulnerable populations to really take strict measures to distance yourselves from others. #3 asymptomatic spread is possible and therefore we need to consider limiting our direct contact with others so you know really think about when you're on that walk. Avoiding the person who is coming down the same sidewalk from you and going to the other side. We really need to understand that asymptomatic spread is is likely the reason why we are seeing so many cases pop up. All over the world, even when we're trying to isolate those with disease. And then the last pillar are the pillars of Prevention. Please remember to wash your hands. I recently came back from The Who in Geneva and was very impressed with how many people were washing their hands in the bathrooms of airports for 20 seconds. Please be an example an please wash your hands very thoroughly every single time you wash them. You know you're welcome to have lotion by the side as well so your hands don't start cracking from all the washing. But please wash your hands with soap and water as much as you can during the day. And make sure you clean and disinfect surfaces. Remember there's a difference between cleaning and disinfecting surfaces daily, and any high touch areas and then really seriously consider decreasing any direct contact time with neighbors with with family members that are living outside of your home. It's important that we at this time really physically distance ourselves from those that we love and that really is a sign that we care care so much for them. Which is why we're doing that. And I think with that I'm going to hand it back to Katie. Thanks so much for your attention. Wow, thank you so much. Doctor Trivedi, we have gotten so much great information, insight and tips from you before we move on to the Q and a portion of our time together. Everyone should see a survey on the side of their screens. The survey is going to guide us for future events, so please provide us any feedback on today's events now. I have gotten dozens of questions already for the speakers. If you have a question, please submit it through the Q and a widget on your screen or you can send it to contact northern at northerntrust.com and we have lots and lots of questions, so we'll try to get through as many as we can. Uhm doctor, I'm going to start with you. We got a lot of questions about the infection rate. Mortality rate given the fact that we don't have widespread testing, can you comment on your perspective relative to what numbers we should be focused on? Sorry, I was speaking on mute. Yes, of course. So we are going to see an increase in testing in the coming weeks. We actually just, uh. Got notification that both Steffi AT and Abbott Laboratories have developed molecular tests that give you results in 45 minutes to five minutes, respectively. So, so we're going to see an increase in testing when we see the increase in testing, as we saw in China and other countries, cases will go up. I think the thing to know is that we can expect the numbers to go up in the next few weeks, just as our counterparts in other countries. I think the thing to know from from each individual perspective is testing may become more available to each of you as as testing becomes more available to all all areas of this country. So and as these tests become more available so I would say that. Take these numbers all with slightly agreeing of solid. There a bunch of people that have not been tested there. A bunch of people that we no longer need to test because they're already passed. You know they've already isolated themselves for 14 days. We no longer have to do that and they will never be counted in the in the overall numbers, so these numbers are probably slightly lower than they could be because of our issues of the testing. I'd say don't get, don't get confused or don't get scared by just a number. Really think of what you can do as an individual for yourself in your community and your family. I think that's exactly where we need to be, and testing will become more more available in the in the coming weeks and even the coming days. Great, thank you. I'm Brad. I've gotten a number of questions for you as well, so I'm going to start with just a definition of a question around. How do you differentiate between investment grade and high yield? What's the difference? Was looking at the rating agencies so anything from lower than triple B minus or be a three, so S and P500RS MP is B double, triple B minus and movies is BA3. So anything below that would be considered non investment grade. Anything with that rating or above would be considered investment grade great so it's very very tight to the ratings agencies. Yes, very much so. So as a follow on Brad, you mentioned the the sort of waterfall of ratings downgrades you mentioned, Occidental Ford, Fallen Angels. What's your expectation for more downgrades from investment grade into high yield relative to the size of the respective markets? and I know you mentioned, uh, 200 and 200 to 215 billion potentially getting downgraded in total. How does that compare to the? The total the total number of total AUM and high yield. So to let him in high yield right now is about a trillion dollars, so it will be substantial influx into issuers into high yield space. If that happens, you know roughly around 20%. But to your question, the first question you know it's large from a an outstanding amount perspective, a market value based perspective, but from a market percentage basis, it's only about 3.7% of the universe. When you compare that to history, it's still relatively low. We have to understand that the investment grade market is about. You know 3 1/2 to four times greater than, larger than where it was a decade ago, so you know in the past you'd expect about 100 billion dollars of downgrades. Now we're expecting 200 billion, but because the size of the market, it's not as great from a market value percentage standpoint. Great, thank you so much doctor. I'm gonna go back to you here. One of the things that we've been hearing about. We just gotta question on is whether there was a cyclicality or seasonality to to the virus and you know doctor found she noted that it appears that the virus could be cyclical in light of how it's behaving in regions that are beginning to experience winter, like South Africa. Can you elaborate on that? Sure. The This novel virus may transmit somewhat more efficiently in the winter than in the summer, but we don't entirely know all the mechanisms responsible for this. Any change, though inefficiency of transmission, is expected to be modest, however not enough to stop transmission on its own, so we can't expect transmission to end just because it gets warmer. Based on the analogy of the H1N1 pandemic, we are expecting that this novel virus will face very low immunity since none of us have ever seen this virus before, you know, 14 weeks ago and that's transmit more readily even outside of the winter season. So I think we can't necessarily hang our hopes that. Changing seasons will stop transmission, but may we may see a decrease in transmission during during the warmer months. Great in that at that actually answers another question we got about whether one has immunity after recovering from Cobra 19 and I guess based on what you just said the answer is we don't know. Yeah, I mean, there is. We're hoping based on the way other viruses. You know the way other viruses react with our bodies that there is some inherent immunity after you've had infection. But if we look across the globe, especially in places that have been dealing with the virus for quite some time, there is some information about reinfection. So two things, one that we may have re infection with this virus now, it's unclear if the new virus that the person is then dealing with happens to be the same virus or a slightly different version. Different strain of the original virus. And #2 we have a Co infection, so we also want to remember that even if you have kovid it doesn't mean that you're immune to getting another virus. On top of that, right? So you could you could have influenza in, or you could even have a bacterial superinfection. So no, I think those are all things that we are still learning an learning about. Hoping that people will have some sort of immunity but but we will. We will have more data to figure that answer out completely. So another question for you, doctor an. You know a lot of what we're doing is we're looking at other at the pattern of this virus around the world and countries response, and then how the virus and the spread responds to the containment measures. And you know the virus started in China and so that was the earliest. So we have a lot of sort of numbers and data on China. First question is, so it's a quick little series of questions. One, do you believe the numbers and data released by China? And then Secondly, what are you thinking in terms of now that China is trying to go back to business and we're starting to see an increase in infections again, what is that? How does that bode for the US, right right? Really astute question. So do I believe information from China? Yes, I think they have been from from the medical community standpoint. They have been very collaborative. They've been very collaborative with The Who and wrote a very extensive report of their first 44,000 cases. That we have most of our information from. In fact an and. Secondly, I'm seeing a lot of collaboration in the medical journals and medical community. And for example there are some editorials from Chinese investigators, kind of critiquing what other countries have done are doing in terms of implementation of these protective measures and then in terms of your second question. Which was about testing, so it wasn't about testing, but I'm going to address it by addressing testing so we are seeing as China and other countries are lifting some of their protective measures we are seeing. Again some cases an this is not surprising. This is something that we we all understand from a pandemic standpoint will happen and these are called episodic outbreaks after the main pandemic has already happened and in in the setting of an episodic. Outbreak we really need to be thinking about extensive testing. An alert clinical systems that can identify cases in clusters promptly, so you know extensive testing by that point when we reach this phase in our response in this country are testing should be pretty extensive at that point, so we can then quickly suppress the spread before there's widespread societal harm again, in that in that phase of our response. I really think that this highlights that our approach is going to be more of a long battle as opposed to a short battle. We really need to consider when we can lift some of these physical distancing mandates across the country because we really don't want these episodic outbreaks to turn into large outbreaks again, so that's why I was very heartened to hear the president. And the federal government say that this probably will last much longer than Easter, which is what the original discussion was, because we really want to make sure that our health care system is ready to take on the next phase, and also that are testing strategies are in place across the country that we can test people right away when we get to that next phase of the outbreak. Of course, was such great news this morning out of Abbott, uhm, related to the availability of this 5 five minute potential availability of this five minute test. Now you know what I'm going to pivot to. Brad Brad, we got again. We're getting tons of questions here. Uh, one. This is a great question. Is we all see the stress in the energy related companies? And you mentioned that you know the default rate in Enerji is supposed to be much higher than the overall high yield market. What is the exposure to the other industries and companies that are most exposed to Cobit 19 related economic weakness? Things like travel and leisure? There's going to be some sort of deep distress in certain certain areas that are sort of directly hit by this. The exposure is a broad question. I would say you know those other sectors a little bit smaller so you know leisure, gaming or not's greatest sectors in the high yield space compared to energy, which is about 9%. Now down from about 16%, and so you know how we manage our product. So we maintain sector neutrality. We define the sections with more broadly, so we do have exposure to some of those names were generally more often quality and construct a portfolio to. It's not liquidity to avoid any 4th for selling, which is really when you lock in returns, but I think the important point to note is we look at the market. Holistic Lee, including the factors that have direct exposure to the Kobe 19 epidemic right now, about 40% of markets trading at distressed levels and how we define it is trading below $70.00 or $0.70 on the dollar. And so when you compare that to wear expectation of the fault are where the credit fundamentals are, we think there's a lot of opportunity there. But how you arrive at those opportunities and how you construct a portfolio to achieve those opportunities is important, and so we prefer a well diversified portfolio that is more round sector neutrality and one that has opportunities within both the high quality double bees and the ideal space as well as single bees and Triple C's. And most importantly, we want to have a strategy that. Out yields the benchmark we know from past research that the income or yield drives 111% of returning the high yield market and so that's what we're trying to achieve is out yielding and then employing through bottoms up as well as a quantitative methodology. Strong issue or selections avoid default and get bread compression to drive those longer return. So like I said, I think high yield over the next year will be 15 or 15% but allowed. That will be be dependent upon. The economic environment. How things shake out, but I will say another started that we've had some unprecedented amounts of stimulus in the corporate bond market. We've seen a lot of buying from and the Treasury and mortgage space, and then will likely get some more action out of the policy makers in Washington to help support the overall market. Great thanks, Brad Doctor. I'm going to turn back to you. We have some very good and very practical questions here. One is about food. We got a couple of questions about whether COVID-19 can live in the in the refrigerator on refrigerated food and then related question about how do you you mentioned disinfecting bags and boxes and cups? What about vegetables and fruit? Yes, so in terms of refrigerated items, I actually don't think I know the exact answer to that question, but I would assume that it can absolutely live at lower temperatures, so I will get back to ever that is with that information, but but I would say that we know this information on surface is so if if the virus happens to be on your Chinese takeout, that's a bad example. Just any kind of Cardboard piece of piece of piece of plastic or any Cardboard item. Then when you put it into the refrigerator, you could be spreading that virus to other surfaces right in the refrigerator. So again would would recommend to wipe that down with a disinfectant, disinfecting wipes and then instead of using the Cardboard box that it's come in, put it into another container before you put it into your refrigerator. Is what I would recommend on that, and then your second question was about oh fruits and vegetables. No, yes, so these are porous porous items. An I would say that the recommendation should be if you can to go ahead and definitely wash them. And if you can wash them with soap and water because then you are potentially getting the virus off of the outside of any of these fruits and vegetables. So some of my colleagues are advocating for taking, you know, a sink full of soapy water and just dipping all of your vegetables and fruit in that and making sure you know kind of get every surface. And taking it out on rinsing it offen. Clean water. So you could consider doing that because it is possible that it is living on any of these fruits and vegetables as well, great another fruit. Very important food related question is around grocery shopping. And, you know, in a lot of areas of the country now you are unable to get at home delivery of groceries, and that's forcing some of our our older. Citizens to have to go to the grocery store even though they're they're very frightful of doing so. And, you know, even in the senior hours, which I think a lot of supermarkets are having special senior hours, things are very crowded. So what's your best advice for seniors who have to go out to grocery shop? Yes, so number one I would say again this is a great time to ask some of your younger neighbors to help you out. So if you can, you know, ask people that live on your in your building if they might be willing to help you. I think this is a great time for all of us to show solidarity, especially to protecting some of those vulnerable populations. and I think many of those people would be happy to help you out. That would be number one. Don't be afraid to ask for help and the number 2 if you still have to go on your own. I would say limit going to the grocery store other you know if you can too once once a week, if not once every other week and then when you go try to go at a time where there are less people there. The things I've advised my own family members that are in this vulnerable group are to go to the grocery store right when it opens in the morning and get there even a few minutes in advance. You can get there right? When it opens at 8:00 o'clock and if that may be a busy time in your area. Try to find another time to go. Go either late at night when no one is there or less people are there. There are many of our grocery stores that are now only allowing a certain number of people in an even the line outside is people standing 6 feet apart. I would try to visit establishments that have those type of measures so if you happen to know a grocery store near you where everyone has to stand 6 feet apart, I think that indicates that the grocery store is really understanding of what's going on with this pandemic. And would be a place that you you know you should consider shopping at and then the last thing that I would advise is to learn about your sick leave policy in any of these establishments that you want to go visit, because again, we are losing a lot of money in the economy. A lot of people are losing their jobs. Something to consider is that people may be going to work even if they're sick, especially if they don't have a good sick leave policy. So it might just be something to consider with with some of the grocery stores that you have the choice of going to at this point. But that is such an interesting observation to consider Alright, Brad, let me quickly ask you this question, and this is a good question. You referenced the down your expectations on a couple of 100 billion dollars of downgrades from investment grade to high yield. This questions about rating agencies and the rating agencies were criticized in 2008 as being too slow to respond to changing conditions. Do you think that they may be? Sort of quick on the trigger this time relative to downgrade zahn related to that is what what economic scenario supports. Your expectation of 200 billion dollars of downgrades. Damn. You know, I think you know what we've seen so far was expected with forward Occidental, an Kraft Heinz with the largest three downgrades, about 85 billion there in a rating agencies. Want to rate through the cycle, and so they want to have a forward looking view. They don't want to act too quickly, but more importantly, the bond market tends to adjust well ahead of the rating agencies, and so it's important to point out, as I mentioned, this number of distressed issue is out there, which we believe is more liquidy related and will have to monitor that going forward. But yes, they have. They have not done very well in past recessions or in crisis periods with respect to what type of economic environment you know, I think the economy will be different than the market. Obviously want to drive the other, but there's so much stimulus in place that the economies are the market may start to discount the economy to some extent, particularly once we understand the impact of all virus. But our view from a downgrade perspective from the following little perspective is. Is you know GDP growth North lower than 15% in the second quarter and then a U shaped recovery over the next 12 to 18 months so. Pretty bad, I would say it could be worse. Time will tell, but we're confident in where we started this. Crisis. And all the lovers that the balance of the management teams have on the balance sheet as well as how the investment grade market is open. That's important to note that we saw 110 billion dollars of issuance last week. There is a significant liquidity premium investment grade versus non investment grade so we believe fallen Angels will be less. Won't be more than 215 billion because management team do all they can to maintain that. Maintain that investment grade rating. So they don't go into high yield, they don't have access to the market. So what we saw last week was promising, but we've seen from the policymakers has been promising, and we think, as I said, about 200 two 115 billion downgrades, which is mostly priced in already. Great Brad, thank you and I know we're right up at time, but I'm gonna squeeze one more question in for the doctor. So doctor, um, for those of us who are helping to care for a family member who has COVID-19 but if not sick enough to need hospitalization, can you leave us with three best takeaways for keeping ourselves and the rest of our families safe? Yes, so this would be something like where health care providers are doing across the country on keeping their own families safe. So this is very similar to that. So if you're a caring for an ill family member, I would recommend wearing a mask when you're interacting with them and wearing gloves while you're in their home. I would recommend washing your hands meticulously when you're caring for them and do not touch your face. I would also recommend consider. And he closed that are exposed to your ill family member possibly having virus on them. So I would take them of- when you leave their home and wash them as if they were a gown and then all the things I already mentioned in terms of keeping your family member out of the public do their groceries for them a system as much as you can, even if they're mildly ill to prevent the spread of infection from your family member to others. Great thank you very much, and I, I really apologize for going over time on today's presentation, but there was so much valuable content. But unfortunately I'm going to have to conclude right now I want to thank Brad Camden so much. And doctor Cavite Trivedi. Thank you so much for the great discussion and insights. I encourage everyone to connect with their relationship manager if they have any other questions and we did get a lot of questions that we didn't get to answer. So I want to also encourage everyone to check out our FAQ document that we publish every Wednesday where we try to sort of put all the questions in different categories and answering address all of the questions that we get during these calls that aren't able to get to live so. Please check out Wednesdays publication if your question did not get answered. Also, if you missed any part of today's remarks, you can access a replay beginning tomorrow, March 31st at northerntrust.com backslash financial market updates. I also want to invite you to join us on Friday. this Friday we're going to have Carlton bomber chief economist. He's going to return to provide an update on the latest developments in the economy as it relates to the pandemic and also importantly, what we've seen lately is a real uptick in cyber fraud. So we're going to invite our chief information risk officer Bill Borawski to join us. He's going to give us his perspective on on what we're seeing and what you can do to stay vigilant during these challenging times. So we hope you will join us on Friday. I want to thank everyone again for joining us today. _1591262923576
Title:Insights From Northern Trust
Date: Monday, March 30, 2020
Time: 10 AM CT
Duration: 60 Minutes
For this extended Insights from Northern Trust event, Wealth Management Chief Investment Officer Katie Nixon continues our discussion on the COVID-19 pandemic and its investment implications. We are pleased to be joined by Brad Camden, Director of Fixed Income Strategy and Dr. Kavita K. Trivedi, epidemiologist and consultant to the World Health Organization.