High yield investors who are concerned about these risks may look to buffer their portfolios with bank loans
The outlook for both interest rates and energy prices is far from certain. For investors who are looking for less exposure to these risks in their fixed income portfolios, bank loans, also known as senior loans, may present an attractive opportunity that’s more defensively positioned (from a rate and energy risk perspective) than the overall high yield market.
This year has seen considerable flows into high yield exchange-traded funds. However, high yield valuations have tightened over the past two months, and investors are eyeing the potential for interest rate risks to emerge and energy risks to persist.Read More
Part 3: Give Credit Where Credit Is Due
This third blog post of a three-part series explores support factors for the market over the next several years. Part 1 discussed indicators that we’re in the later stages of this profit cycle, and Part 2 looked at where we see vulnerabilities in the marketplace.Read More
Part 2: Watching for the Plot Twist
This second blog post of a three-part series looks at where we see vulnerabilities in the marketplace. Part 1 discussed indicators that we’re in the later stages of this profit cycle, and Part 3 will explore support factors for the market over the next several years.
While investors may be riveted by Hollywood’s surprise endings and cliffhangers, they generally aren’t fond of unexpected plot twists in the market. So here’s a spoiler alert. The operating results of companies in the current cycle have been quite strong, and many investors expect this to continue. But we’ve seen enough plot twists over time to know this can be a risky assumption.Read More
How has the eurozone fallen into deflation and negative interest rates?
How has much of Europe entered the topsy-turvy world of negative interest rates? To understand why negative rates have come into such prominence, particularly in Europe, we need to understand why a certain fundamental assumption of monetary policy can be very misleading.Read More
Opportunities can be found, but the outlook is negative overall
As my Invesco Fixed Income colleague Sean Newman outlined in his blog, Brazil: Macro Headwinds are Strengthening, the country is suffering from economic, fiscal and monetary risks. The increasingly negative macro backdrop — as well as an ongoing scandal involving the country’s largest company, Petrobras —has weighed heavily on Brazilian corporate credit.
Year-to-date, Brazil is the worst-performing Latin American country within the JP Morgan Corporate Emerging Market Bond Index (CEMBI) with a total return of -1.35%.1 It was the third worst globally behind only the Ukraine and Nigeria. This performance stands in stark contrast to that of the CEMBI overall, which has returned 1.9% year-to-date.Read More
Reasons to keep bonds on your plate, despite concerns about interest rates
While I was growing up, “eat your vegetables” was a nightly mantra directed at the pickier eaters who preferred to skip the colorful components of Mom’s well-balanced meals. We, of course, were more enthusiastic about the bland-colored meat loaf, gravy and mashed potatoes. But those peas and carrots disappeared because, as our parents reminded us, “It’s a long time till breakfast.”
Rather than scaling the Food Guide Pyramid every day, most of us prefer foods that taste good. But with maturity comes the realization that a balanced diet is essential to maintain good health, and we’re more willing to acquire a taste for sautéed spinach. Likewise with investing — balance is key.Read More