With some jurisdictions gently reducing coronavirus-imposed restrictions, institutional investors are beginning to lay out possible scenarios for economic recovery.

The terms V- and U-shaped recovery, along with arguments over which is more likely, have swirled throughout the past few months as economies around the world shut down huge swathes of their normal activities. Alessio de Longis, senior portfolio manager on Invesco’s investment solutions team, isn’t thinking in terms of shapes, but if he were, his firm’s base case scenario would look more like a ‘W.’

“It’s reasonable in our minds to accept phases of, let’s say, a three to six month period where it will look like a recovery and then you get another setback, whether driven by market sentiment or driven by actual developments in the economy, such as renewed shutdowns, renewed quarantine,” he says.

Preferring to delineate scenarios as base, bull and bear, he notes that how markets fare will depend significantly on progress in the medical world — a very unpredictable situation investors aren’t used to analyzing. “We’re used to developing scenarios based on economic developments. In this case this is what the challenge is, because we’re not epidemiologists and we have to rely on the information that is not really directly related to our field of expertise.”

The firm’s bear scenario includes a protracted contraction lasting around 12 to 15 months, which would involve the impacts of the coronavirus being more severe, causing the economy to struggle to reopen through autumn. In its bull scenario, positive news on the medical front would bolster an extended economic recovery with strong activity through the second half of 2020, fuelled by a return to work and lagged effects of government stimulus efforts.

Looking to the near term, any expectations of a V-shaped recovery are gone, according to David Norris, head of U.S. credit at TwentyFour Asset Management. “There’s zero chance of that.”

Looking specifically to fixed income, the ramifications of the pandemic are showing through in corporate quarterly results, he says. “We’re going to expect an increase in default rates. . . . We’re going to be looking for more downgrades in credit markets. We’re seeing terrible economic data from unemployment to production to [gross domestic product] globally. And so all of these things rule out a very sharp recovery.”

New issuances of corporate debt have been a feature of the crisis so far, as companies seek to ensure they have sufficient liquidity to ride out the storm, creating buying opportunities for the selective fixed income investor, notes Norris. “When you’re positioning, we have to consider that we’re going to be in a recession. And secondly, the search for yield is going to be even more telling because all the government bond rates are now at zero. . . . So we’re now going to enter a period where rates are going to be at very low levels for a very long time, very similar to what we were seeing in the financial crisis. As a bond investor, you’re searching for yield, but you’re also concerned that you’re expecting an increase in default rates and ratings, downgrades.”

While 2020’s second quarter is set up to be horrific for many companies, as businesses inch towards some degree of normalcy, Norris says he expects each quarter will be an improvement, even if a modest one, on the last.