What are the benefits of fixed income?

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.

What risks are associated with fixed income investing?

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.

Fixed Income

Global Fixed Income Strategy Monthly Report

February 28, 2025

Invesco Fixed Income

Get an analysis of important drivers of global fixed income markets, including macroeconomic trends, interest rates, currencies, and credit, in our monthly global strategy report.

In our February report:

Global macro strategy
January’s higher than expected inflation reading raised questions about US inflation’s future path and Federal Reserve (Fed) policy. We expect inflation to remain sticky this year but believe the declining trend is intact. The Fed may be cautious about its next cut, but we believe the bar is very high for a hike.
Credit
The rising popularity of home equity loans in the US has led to their increased securitization. We believe securities backed by home equity loans are an interesting investment option and we provide an introduction to this growing asset class.
Interest rate outlook
US: We’re overweight US interest rates. Over the long-term, Treasuries appear undervalued relative to fundamental drivers.

Europe: We’re maintaining an overweight stance on European interest rates. US trade policy may pose downside risks to euro area growth and the European Central Bank (ECB) may need to cut rates more than expected.

Currency outlook
US: We’re broadly neutral on the US dollar, given the uncertainty surrounding the potential new policies of the new administration, especially on the trade front.

Europe: We’re underweight the euro, given the myriad headwinds to the euro area growth outlook.
The bottom line
US investment grade has started 2025 on solid footing, in our view. Our Invesco Fixed Income portfolio managers share high income opportunities, solid fundamentals and strong supply-demand dynamics currently support the asset class.

Catch up on the last few editions:

January 2025

Trump delivers on his campaign promises

NOVEMBER/DECEMBER 2024

Macro conclusions from the November IFI Summit

October 2024

Is Europe’s neutral rate rising?

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.

$460 billion in fixed income assets under management
18 years investing in fixed income markets

Source: Invesco as of September 30, 2024.

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.

Related insights

Fixed Income The active management advantage

By Matthew Brill , Craig Altholz

Learn how the Invesco Fixed Income team leverages active strategies to navigate risks, capitalize on credit opportunities, and deliver better outcomes.

February 5, 2025