The coronavirus pandemic and related economic shock have led consumers and investors to squirrel away cash to the tune of $20 trillion, and the higher rate could exert downward pressure on rates. This according to an article in Bloomberg.
“Many experts expect that urge to save to stick around for the long haul,” the article says, adding, “And that should create strong demand for the safest fixed-income products, a force that could lend a hand to the Federal Reserve when it comes to suppressing yields as the government ramps up its supply of bonds to pay for economic stimulus measures.”
The article cites comments from PIMCO portfolio manager Anthony Crescenzi, who explains that the high savings rate—due in part to cautious spending by households–will exert downward pressure on interest rates, arguing that the effect will extend across money market rates as well as longer-dated assets such as Treasury notes and bonds as well as mortgage-backed securities.
According to Peter Yi, director of short-duration fixed income at Northern Trust Asset Management, the psychological impact of the current crisis could result in a 15% savings rate, double the historic average: “People overall are still concerned, with some investors simply saying they need to get on the sidelines until the dust settles.”
Brett Wander, CIO of fixed income at Charles Schwab Investment management, sums it up this way: “There’s a dynamic where, while the stock market may have recovered a great deal of the downward performance from March, there’s still a sense out there that the risks are generally unknown.”