Outrageous technological advance. Changing work patterns during the spread of a killer virus. The government’s intertwining of fiscal and monetary policy. These are just some of the happenings that investors are facing, and they were addressed by BlackRock experts looking at the challenges of fixed income investing circa 2020. CEO Larry Fink and his team spoke Wednesday during the Schwab IMPACT conference via webinar.

Fink said humans are adapting in many ways, and people and businesses in Covid times are likely not returning to the way certain things were done before. Now that we can work remotely, “we’re not all going to go back to offices going forward,” Fink said. “It’s a blessing that we can have 60% to 70% of our workforce working in an office and maybe rotating who those people are, and we have 30% to 40% working from home. Can you imagine a life in which you’ve got back an hour and a half to two hours of your day because you’re not commuting anymore?”

At the same time, less congested cities could be good news regarding pollution and sustainability, he said. And education is changing too as people consider learning from home. 

“We’re not going to go back to pre-Covid. … I don’t believe we’re going to go back to shopping like we did pre-Covid," Fink said. "I think people are more accustomed to do more internet-based commerce.”

At the same time, the pandemic has ripped the cover off the economy and exposed a painful wealth and income gap. That will hurt people in industries like lodging and hospitality that likely won’t come back soon, he said.

Fink stressed that technology will also play a more important role in the economy and in financial services.

Rick Rieder, BlackRock’s chief investment officer of global fixed income, said in a separate panel discussion that in this unprecedented policy environment the U.S. could be looking at $2 trillion-plus in stimulus, depending on who’s controlling the levers of government. “It’s roughly 20 times bigger than you saw after the financial crisis,” he said.

The massive monetary stimulus from the Federal Reserve is also playing a huge role in the U.S. economy, and he said he thinks the Fed deserves an “A+” in its accommodative posture. The Fed has been aggressive in keeping interest rates at near zero and likely will continue to do so.

“They actually unlocked the top of the capital stack in a lot of assets—commercial real estate, residential real estate, receivables, student loans, etc., which wasn’t always transparent from what the media describes, but it's a really big deal,” Rieder said. He also thinks Europe’s central bankers have done a good job.

A big question is how do you generate yield in this environment?

James Keenan, head of credit at BlackRock, said that one of the ways his team looks for extra income is via direct lending in the U.S. and Europe, as well as traded markets in Asia. He said that private equity has made a comeback in the last few months.

“If you have the right tenor of capital and the right fund structures, some of the private market activity, some of the direct lending where you can get 8%, 9% or 10% for first-lien assets with 50% loan-to-value on new performing assets, that’s very attractive," he said. "Think about these being three- to-four-year average life instruments. That’s an area that really slowed down because during the crisis private equity really slowed down from new [M&A] deals. … We really like that from an exposure standpoint in income.”

Keenan said the Asia and Chinese markets have also significantly rebounded. “There’s good yield there,” he noted. “That market continues to evolve and grow. There are some traded instruments there that [tend] to be more shorter duration, think of two to three years that you’re getting high single digit-type yield and, again, diversification relative to what you’re getting in the U.S. market.”

In U.S. traded markets, he said, his team remains hesitant in sectors like energy and areas affected by Covid but he thinks that quality companies with 4% to 5% yields are a good anchor for spread risk.

Keenan said the early-stage defaults during Covid were from companies that were already stressed—energy companies and companies like Frontier Communications and Intelsat. Those types of firms suffered from secular market problems, balance sheet stress or overleveraging.

But companies in more stable industries bounced back thanks to the liquidity put back into the system, he said. Industries that were priced to liquidate early in the year have recovered but they might take three or four years to get back to 2019 levels. Names in lodging, leisure, transportation and energy industries could still see defaults over the next couple of years, however.