October 2024
Article
Global Fixed Income Strategy Monthly Report
December 20, 2024
In our regularly updated macroeconomic analysis, we offer an outlook for interest rates and currencies – and look at which fixed income assets are favoured across a range of market environments.
In this edition:
Macro
Each November, the Invesco Fixed Income IFI platform gathers at the IFI Global Investor Summit to discuss and debate macro views underlying our investment strategies. In this edition, we share highlights of the team’s macro and market conclusions, covering Europe, the US, China and Emerging Markets.
Credit
Our Summit panel of credit investors discuss where they see opportunities across global credit markets.
Interest rate outlook
We have moved to a more neutral stance on European rates. We believe elevated wages and service inflation could be an obstacle to rapid rate cuts. We are positive on UK rates and believe there is some downside to yields, especially at the front end of the yield curve.
Currency outlook
We are negative on the euro. Political uncertainty in France and Germany have weakened the euro, and we expect continued pressure as the ECB lowers rates faster than its peers. We are underweight the British pound. Recent UK data point to downside growth risks, which could weigh on UK rates and the pound.
This month’s Q&A
Hear the views of credit investors from across the IFI platform on opportunities in global credit markets, moderated by Senior Analyst, Bixby Stewart.
Catch up on the last few editions:
FAQs
Whether you’re looking for income, diversification, capital preservation or total returns, our global fixed income teams have the strategies, the scale and the flexibility needed to match your objectives as markets evolve.
We have more than 200 fixed income specialists who invest across regions, investment styles and capital structures. Their expertise spans the entire fixed income spectrum, covering credit, rates and currencies.
- $313.72 billion in fixed income assets under management
- 45+ years investing in fixed income markets
Source: Invesco as of 31 December 2022.
Fixed income investments can offer several important benefits to investors:
- Diversification: Adding fixed income securities to a portfolio can help diversify it and reduce its overall risk, as bonds typically behave differently to other investment instruments like equities.
- Risk reduction: Fixed income investments are deemed less risky than stocks, as the issuer is contractually obliged to meet the income payments and repay the principal sum on the redemption date. In the event of bankruptcy, fixed income instruments also sit higher up the capital structure than equities. This means that the issuer will meet its debt obligations before looking after its shareholders.
- Liquidity: Many fixed income securities are highly liquid and can be easily bought and sold in the market.
While fixed income securities are deemed less risky than equities, there are still some key things to look out for:
- Interest rate risk: When interest rates go up, bond prices go down. This is because, in the new higher rate environment, new bonds will be issued on more attractive terms. As such, investors looking to sell their existing bonds will need to do so at a discount in order to compete.
- Inflation risk: When investors buy a bond, they commit to tying their money up for a set period of time. If inflation is high or rises during the lifetime of the loan, its value will be eroded and their money will have less purchasing power when it is repaid on the redemption date. Inflation also erodes the purchasing power of the income earned.
- Credit risk: When you invest in a business or government, there is always a risk that they will go bankrupt and fail to repay the loan. Furthermore, if they run into difficulties, they may struggle to meet interest payments and default on their obligations. Fixed income investors should carry out thorough credit analysis before buying a bond to make sure the issuer is financially sound.
- Market risk: If an investor is unable to hold a bond until maturity and needs to sell it on the secondary market, price fluctuations resulting from the overall performance of financial markets could lead to losses.
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Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Important information
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. Views and opinions are based on current market conditions and are subject to change.
EMEA 4107490/2024
