Taxonomy of a Crisis

For investment professional use only
2

Disclosures

IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market 

developments. All opinions are subject to change without notice. 

Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 949-720-6000

CMR2020-0521-1194422
3

Biographical Information

Marc Seidner

Mr. Seidner is the CIO of Non-traditional Strategies, a managing director and head of portfolio 

management in the New York office. He is also a generalist portfolio manager and a member of 

the Investment Committee. He rejoined PIMCO in November 2014 after serving as head of fixed 

income at GMO LLC, and previously he was a PIMCO managing director, generalist portfolio 

manager and member of the Investment Committee until January 2014. Prior to joining PIMCO in 

2009, he was a managing director and domestic fixed income portfolio manager at Harvard 

Management Company. Previously, he was director of active core strategies at Standish Mellon 

Asset Management and a senior portfolio manager at Fidelity Management and Research. He 

has 32 years of investment experience and holds an undergraduate degree in economics from 

Boston College.
4

Cause and Effect

Very different causes, but similar effect

2020

Policy 

Response

Healthcare 

Crisis

Imposed 

Restrictions

Sudden 

Economic 

Stop

Financial 

Market 

Disruption

Excessive 

Lending

Financial 

Market 

Volatility

Economic 

Impact 2008

Financial 

Sector 

Failure
5

The speed and depth of the equity drawdown was remarkable

As of 30 April 2020

SOURCE: PIMCO, Bloomberg

Largest U.S. equity (S&P 500) drawdowns since 1950

Current drawdown fastest 

decline since 1929

● Depth: COVID-19 

drawdown ~60% of 

2008’s drawdown

● Speed: COVID-19 

drawdown occurred in 6% 

of time it took for 2008’s 

drawdown to unfold

By the Numbers

1cs_intl_review_02

-60%

-50%

-40%

-30%

-20%

-10%

0%

0

14284256708498

112126140154168182196210224238252266280294308322336350364378392406420434448462476490504518532546560574

Cumulative return

Days since drawdown began

2008

1987 COVID-19

1973-74 2000-02
6

Not all participants seek to maximize total return

• Discretionary investors vs. rules-based investors

• Unleveraged investors vs. leveraged investors

• Mutual funds vs. ETFs

• Regulated vs. Unregulated

• Total Return vs. Book Yield

Fixed Income is a very heterogeneous market
7

PIMCO’s Concentric Circles: Framing relative risk across asset classes

For illustrative purposes only.

As of 30 April 2020

SOURCE: PIMCO

PIMCO’s concentric circles

 Investments closer to the core represent the least amount of risk, while those at the periphery have more cash flow uncertainty

 Liquidity moves from the center to the outer periphery

 In March, there was no differentiation

Fed funds O/N repo

3-month T-bills + commercial 

paper + 2-year T-notes

Intermediate + long Treasuries

GSE mortgages + swaps + 

government futures+ TIPS+ agencies

Bank debt + bank capital + national 

champions + AAA asset-backed

High quality EM + munis + 

investment grade

High quality CMBS

High yield + bank loans + 

subprime mortgages + low 

quality EM

Equities + real estate
8

Market Disruption – ETF NAVs (Price / NAV)

As of 15 May 2020

SOURCE: Bloomberg

Charts are provided for illustrative purposes and are not indicative of the past or future performance of any PIMCO product. Past performance is not a guarantee or a reliable indicator of future results.

Example Short Maturity Bond ETF

Example Investment Grade Bond ETF

Example 20+ Year Treasury Bond ETF

Example High Yield Corporate Bond ETF
9

Market Disruption – Deleveraging of REITS

As of 15 May 2020

SOURCE: PIMCO. JPMorgan

-3

-2

-1

0

1

2

3

4

5

6

Dec '19 Jan '20 Feb '20 Mar '20 Apr '20

Price Change since 12/31/2019

Fannie Mae 3.5%

Fannie Mae 4.0%

Fannie Mae Low Loan Balance: Price Change since 12/31/2019
10

• Market depth in duration markets were severely compromised during the March meltdown. Liquidity conditions deteriorated quickly with 

TYs trading ~450 contracts up and CT10s on ~$13MM Notional per lot at the height of the crisis.

Market Disruption – Treasury market froze

As of 15 May 2020

SOURCE: JPMorgan

*Market depth: cash market depth is the average of the top 3 bids and offers on-the-run Treasuries, averaged between 8:30am and 10:30am daily. Futures market depth is measured similarly to cash, including both the front and back 

contract.

Fed announces QE4 0

50

100

150

200

250

300

350

400

0

5,000

10,000

15,000

20,000

25,000

30,000

$(MM)

Treasury Futures (# of Contracts)

10Y Futures (# of Contracts) (LHS)

10Y Cash (RHS) Market Depth* since January 2019
11

Market Disruption – Muni Market funding stresses

As of 30 April 2020

SOURCE: Bloomberg

Municipal Mutual Fund Flows (2010 – 2020)

SIFMA and LIBOR Yields 
12

Market Disruption – Muni Market historic cheapness

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0%

50%

100%

150%

200%

250%

300%

350%

400%

Muni/UST 10Y Ratio (LHS)

Muni/Corp Index Ratio (RHS)

As of 30 April 2020

SOURCE: Bloomberg

The terms “cheap” and “rich” as used herein generally refer to a security or asset class that is deemed to be substantially under- or overpriced compared to both its historical average as well as to the investment manager’s future 

expectations. There is no guarantee of future results or that a security’s valuation will ensure a profit or protect against a loss.

The Muni/UST 1-Y Ratio measures the AAA ten-year muni yield to the ten-year U.S. Treasury yield, through Bloomberg ticker MUNSMT10.

Muni/Corp Index Ratio is measured using the Bloomberg Barclays Municipal Bond Index Total Return Index and Bloomberg Barclays US Corporate Total Return Index Yield to Worst (basis points)
13

• Markets generally functioned/ system “worked”

• Derivatives helped risk transfer

• Direct access to Federal Reserve policy tools would help

• Opportunity for all-to-all trading platforms

Observations
14

Critical Importance of Liquidity Management

Analysis combines forward-looking scenarios with historical market conditions and portfolio flows

Stress test

Derivative positions 

(potential margin calls)

• Traditional VaR

• Historical scenarios

• Forward-looking scenarios

Fund outflows

• Analyze historical inflows

and outflows by strategy

Portfolio

liquidity targets

Monitor

Review adherence to liquidity

targets daily for portfolios

Consider PIMCO’s cash desk 

projections of any expected future 

cash requirements

Escalate to desk head, Investment 

Committee or CIOs as required

risk_mgmt_20b

PIMCO manages liquidity at the individual portfolio level, based on stress-testing each portfolio and monitoring adherence to liquidity targets 

on a daily basis
15

Credit derivatives enabled risk transfer...

As of 18 May 2020

SOURCE: Bloomberg

0

0.5

1

1.5

2

2.5

0

20

40

60

80

100

120

140

160

Jan '20 Feb '20 Mar '20 Apr '20 May '20

CDX / Cash Volume

CDX IG Spread (bps)

IG CDX Spread (LHS) IG CDX/IG Cash Volume (RHS) HY CDX/HY Cash Volume (RHS)
16

...in a very efficient manner

As of 15 May 2020

SOURCE: Bloomberg

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Feb '20 Mar '20 Apr '20

HY Bid-Offer (pts)

HY Cash B-O Most Liquid

HY Cash B-O Med Liquid

HY Cash B-O Least Liquid

HY CDX Bid-Offer

High Yield Bid-Offer

0.0

1.0

2.0

3.0

4.0

5.0

Feb '20 Mar '20 Apr '20

IG Bid-Offer (pts)

IG CDX Bid-Offer

IG Cash B-O Most Liquid

IG Cash B-O Med Liquid

IG Cash B-O Least Liquid

Investment Grade Bid-Offer
17 1cs_intl_review_02

Sector Gross Supply Maturities/Paydowns Central Bank Purchases Net Supply Net Supply including 

Central Bank Purchases

Sovereign Sectors

US Treasuries $462.0 $348.9 $1,504.1 $113.1 ($1,391.0)

Agency MBS $396.0 $290.0 $526.0 $106.0 ($420.0)

EUR and GBP Sovereigns $537.6 $278.8 $400.9 $258.9 ($142.0)

Asia Sovereigns $6.7 $2.0 $0.0 $4.7 $4.7

Emerging Markets ex-Asia Sovereigns $59.7 $28.3 $0.0 $31.4 $31.4

Total Sovereign Sectors $1,462.0 $948.1 $2,431.0 $514.0 ($1,917.0)

Credit Sectors

US Investment Grade $588.0 $193.0 $0.0 $395.0 $395.0

US High Yield $49.0 $46.0 $0.0 $3.0 $3.0

US Loans $13.5 $0.0 $0.0 $13.5 $13.5

US Securitized (ex-Agency MBS) $32.8 $26.4 $0.0 $6.4 $6.4

European Securitized $6.1 $13.0 $6.5 ($6.9) ($13.4)

Covered Bonds $20.5 $33.5 $26.0 ($13.0) ($38.9)

European Credit $140.3 $55.7 $37.1 $83.6 $46.7

Asia Credit $32.7 $51.6 $0.0 ($18.8) ($18.8)

Emerging Markets ex-Asia Credit $17.3 $21.2 $0.0 ($3.9) ($3.9)

Total Sovereign Sectors $900.2 $440.4 $69.5 $458.8 $389.6

TOTAL $2,362.2 $1,388.5 $2,500.5 $972.8 ($1,527.5)

Since 3/1/20 ($BN)

SOURCE: Intex, JPMorgan, eMBS, Federal Reserve, European Central Bank, Morgan Stanley, Bloomberg, PIMCO

Impact of policy and asset managers in market healing
18

Appendix

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