Jobless claims surged for the second week in a row. Franklin Templeton Fixed Income CIO Sonal Desai joins Yahoo Finance's On The Move to discuss how the 6.6 million jobless claims were anticipated.

Video Transcript

JULIE HYMAN: Want to take a look at what's going on in the bond market today as well. We've got the 10-year yield around 0.6% today. And to talk more about the dynamics in the fixed-income market, let's bring in Sonal Desai. She is Franklin Templeton fixed income chief investment officer. She's joining us from out in San Francisco.

Sonal, obviously, we've been talking a lot about some dire employment numbers. We also had Bank of America coming out with a call on a recession, saying that we could see the worst recession on record. Does that make sense to you with-- given the data that you've been seeing? And if that is the case, is that what the bond market is pricing in right now?

SONAL DESAI: So, you know, I think there are a series-- there are a series of different factors which are in play. Those jobs numbers are terrible, you know, the unemployment numbers. But we would anticipate that they're-- Given the scale of social distancing which is being put into place, and I think they'll probably increase, a lot of what people are calling right now is being driven in part by the expansion of the states where social distancing has been put into place.

So here in California, we were one of the first in. And if I look at the Bay Area, even before we put social distancing into place from the level of the government, you had all the tech companies which were already instituting work-from-home-- work-from-home procedures almost two weeks before everybody else.

So I think that there's that element, and I think we will continue to see because everything associated with travel, restaurants, leisure, activities, is going to be disproportionately impacted in what we're seeing going forward. I think before I'm ready to call it 10%--

So again, this quarter, absolutely, and in the first few months of this quarter, absolutely. We're going to see hideous, shocking numbers on everything. You know, we've just sliced activity in half, 3/4 in some case, because a lot of work cannot be done from home. All of this is absolutely correct.

The real question before you start saying that this is going to be a yearlong phenomenon is really-- I don't know how you can make that call before you see what is the peak, what is the palliative care. Before I'm ready to jump in wholesale and say, this is the next three years, this is the next two years, this is the world's-- you know, this is forever that we are seeing what we're seeing, I think we need more information. So I think it's premature.

Now, going to the-- going to the bond market, it's actually a combination. We have the Fed in play at a level that has never been seen before. We have not just the Fed, but we have global central banks in play. So I would say that if I look at 10-year yields, absolutely. I think that they could even-- they could drag even more. Over the next few weeks, we could see 10-years rally more. At the same time, if I look over a slightly longer period, I would see--

ADAM SHAPIRO: Well--

SONAL DESAI: --some kind of a range. Yeah.

ADAM SHAPIRO: Let me-- I apologize for interrupting. It's Adam Shapiro.

SONAL DESAI: Yeah.

ADAM SHAPIRO: Because I'm trying-- I think like a lot of investors, we're all trying to understand. So help us understand. When you get a stat like the fact that $54 billion was pulled out of money market mutual funds last week. That money-- some is going clearly to cash. Some is going to US Treasurys. What impact of that massive shift on a weekly basis are we seeing in the bond market?

SONAL DESAI: I think I would say small, actually. But I don't think it's the money market funds all going to bond funds because I think the Fed-- the size of the Fed's interventions actually would displace what we're seeing by the money market-- money market funds. So I think it's almost separate.

The Fed really is the biggest game in town right now, and I don't think we can-- I don't think that markets are playing that [INAUDIBLE] role as much as Fed buying. And absolutely, there was this one big move towards risk aversion, but now we know the Fed is there. So I think that's more-- more of what's going on in that front.

JULIE HYMAN: So Sonal, translate all of this into strategically what you all are doing. I mean, as you said, when you're talking about recession forecasts, it's really difficult to make calls right now, right? I know all of us are grappling with it. Companies are grappling with it. You're grappling with it. So what kind of decisions are you making on the strategy front?

SONAL DESAI: So on the strategy front, what we're looking at is trying to be extremely careful about having liquidity across all our different funds at hand. But equally, I think it's important just to look at certain-- certainly on the higher-grade credit side, if they're looking at investment-grade credit. We have seen spreads on very good names blow out to levels which-- which we haven't seen in many, many years. In fact, I-- there's a word I don't want to use, and that's "unprecedented." I just used it. But I will say that we're seeing a lot of spreads blow out a lot.

And as money managers, I think it's very important to try and separate out that knee-jerk, emotional panic reaction that the end of the world is nigh from, well, let's wait a minute. Obviously, [INAUDIBLE] saying that we believe that no one will ever go to theme parks again. I think that is potentially a stretch. So if we look at companies like Disney, for example, you have to look at things from a longer-term perspective. I don't think this is the time to try and time markets-- definitely not.

I do think it's worthwhile looking at quality issuers who are coming into the market at this time. And that's what we're trying to do, really trying to separate out. And of course, we're following all the news. You know, when are we going to be able to go back? When is there going to be a vaccine? What is the palliative care? That's one entire area.

The other side and-- the other side is to try and keep things somewhat in perspective. What we've done in this country so far in terms of social distancing is a lot. There's a lot of complaints about how it happened late.

I'd note, at least as far as social distancing is concerned, we're actually in advance of many countries in Europe. There is-- there are reasons to not be completely-- There are reasons not to see a catastrophe here. We have taken steps. That's important. There are other factors, there's research coming out, looking at the potentiality for seasonality. These are all things which we will be following very closely.

JULIE HYMAN: Right.

SONAL DESAI: And it's important to continue to do that. Yeah.

JULIE HYMAN: Sonal, I like a little bit of reassurance in these times. And indeed, as you were speaking, one of my producers sent a message and said, I'm going to go to Disney World again at some point, so--

SONAL DESAI: I think people will.

JULIE HYMAN: --to confirm [INAUDIBLE]. Exactly. Sonal, thank you so much for your time.

SONAL DESAI: You're very welcome.

JULIE HYMAN: Sonal Desai, Franklin Templeton fixed income CIO. Appreciate it.