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Fund manager Q&A: Are we entering a new era for global bond markets?

November 3, 2023
Invesco
Fund manager Q&A: Are we entering a new era for global bond markets?

Against a constantly evolving macroeconomic landscape, Carla Cricco-Lizza sat down with Hemant Baijal, Head of Invesco’s Global Debt team. They discussed some of the key structural and cyclical shifts that are playing out in global markets right now. Watch the video round-up or download the full Q&A below.

Higher interest rates could be here to stay

Hemant explains why markets are unlikely to revert to a “low inflation, low growth” norm any time soon. In particular, he focuses on the potential impact of three key themes: deglobalisation, decarbonisation, and real wage growth. Finally, he looks at why most global central banks are being forced to follow the Fed’s lead. 

Growth or recession?

Hemant discusses growth expectations across a range of economies. Also, what opportunities is today’s rate environment creating?

Views on credit

Carla asks Hemant for his views on global credit. They delve into why the team thinks it is currently too expensive to present a good opportunity.

A global approach

Hemant and Carla look at the role global fixed income plays in a portfolio, before explaining why investors should think of it as a core allocation.

Download the full Q&A

Highlights include:

  • Interest rates higher for longer
    We believe we are experiencing a new market dynamic – one that is markedly different from the environment we experienced in the years following the Global Financial Crisis. As a result, we are likely to see a higher level of interest rates.

  • A weakening US dollar
    While several shifting dynamics should weaken the US dollar over time, even a simple mean reversion to its long-term average should drive it significantly lower. 

  • Implications for asset allocators
    Over market cycles, we believe a 20% allocation to non-US fixed income is optimal, with a variation between 5% and 30%, given the long cycle of US dollar movements. We believe there is currently a strong argument for an allocation to the higher end of that range.
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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.

    Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

    The values of junk bonds fluctuate more than those of high quality bonds and can decline significantly over short time periods.

    The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

    The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.

Important information

  • All data is provided as at 23 October 2023, sourced from Invesco unless otherwise stated.

    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.

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