2020 started out reasonably for markets and people, but now in this second week of 2021, we are frankly left shell-shocked at the events, market swings, and life impacts we have seen this last year. When the longest period of uninterrupted economic growth since before the Civil War ended this summer with an annualized GDP decline of 31.4% in Q2, it seemed like we could be headed for a second Great Depression. In a year where no meaningful downside risks jumped out to forecast, the 100-year pandemic hit, and the results were, and continue to be, devastating for people and businesses around the world. 22 million American jobs were wiped out in weeks, thousands of businesses were forced to close, and trillions of dollars were spent to combat COVID-19 and support the shutdown economy.

To our healthcare workers and scientists: we are humbled by your sacrifice and indebted to your ingenuity. Despite best efforts and the unprecedented vaccine development timeline, the coronavirus may claim the lives of 600,000 Americans by the time it is hopefully defeated later this year.

In our 2021 Interest Rate Outlook, we review the primary drivers for the economy and interest rates in 2021, then outline our baseline forecast for the year for short and long-term interest rates. Like everyone else, we failed to forecast the kind of world-altering impact for interest rates last year, but our soft scenario for what 2020 would be wasn’t far from where we ended on the back half of the curve. More than half of all sovereign debt globally now has a negative nominal yield.

With such a polarizing year behind us, our mean-reversion mentality expects a fairly unified positive trend this year for people, the planet, and asset prices. All of which heralds moderately higher interest rates beyond the shortest of maturities. May we never see a year like 2020 again!

Health and prosperity in 2021,

The Derivative Logic Team