Most fixed income asset classes are continuing to advance along the credit cycle. We highlight three markets in transition
As investors anticipate the beginning of a new year, we at Invesco Fixed Income are anticipating a new phase in the credit cycle for several bond asset classes. Below, I will highlight a few areas where we’re seeing substantial changes in asset classes’ fundamentals or operating environment. We believe these areas could influence the broader market in 2016.
What is the credit cycle?Read More
Compelling valuations, increased credit demand and the potential for higher interest rates could bode well for bank stocks
The markets are pricing the Federal Reserve (Fed) to raise interest rates in the wake of October’s employment report, which showed vibrant job creation and accelerating wage growth. As of Nov. 11, Bloomberg’s World Interest Rate Probability function suggested a 68% probability of a rate hike as soon as Dec. 16.1 The high probability of a rate hike is underscored by the recent surge in the two-year Treasury yield, which jumped from a low of 0.55% on Oct. 14 to a recent high of nearly 0.88% on Nov. 11.1
Bank stocks have been among the biggest beneficiaries of interest rate prognosticating. Since Fed Chair Janet Yellen testified in front of Congress in early November and left open the door for a rate hike, bank stocks have generally outperformed. Between Nov. 3 and Nov. 11, the PowerShares KBW Bank Portfolio has outpaced the S&P 500 Index by 4.13%.1
Looking ahead, I believe there are a number of reasons for investors to be optimistic about bank stocks.Read More
Expanding the world’s access to clean water could present investment opportunities
While we in North America tend to take fresh water resources for granted, fresh water is an increasingly scarce commodity in other parts of the world. There is a fixed amount of water available worldwide, with 97.5% of it in the form of salt water unfit for human consumption.1 Of the remaining 2.5%, more than two-thirds of it is frozen in ice caps.1 The world’s population now stands at roughly 7.3 billion, and is expected to grow by a third to 9.7 billion by 2050.2 The United Nations estimates that only 1% of the world’s fresh water supply is accessible enough to meet the needs of a rapidly expanding world population.2Read More
We believe active share more clearly shows how a fund and benchmark differ, a key to delivering alpha.
Active share, a tool for demonstrating how a fund’s portfolio differs from its respective benchmark, has been a common term among active investors over the last few years. Tracking error, which has a much longer history, is often regarded as another tool that does the same job. But the differences between the two measures affect how Invesco’s Global Opportunities investment team views their effectiveness and usefulness for investors.Read More
The prospect of higher US interest rates and August’s shock devaluation of the Chinese currency has raised fresh questions about the sustainability of the Hong Kong dollar peg
Every currency needs an anchor – either an external one, such as a fixed or managed peg to a major currency, or an internal one, such as a monetary or inflation target (with the exchange rate allowed to float).
The external anchor or peg ensures that the inflation rate remains basically in line with that of the major currency to which it is pegged.
In the case of an internal anchor, inflation targeting becomes the responsibility of the central bank, so it must have the necessary tools to control the growth of overall money and credit.
The Hong Kong Monetary Authority (HKMA) has those tools, so an internal anchor is feasible.Read More
Not all high yield credits are the same, which can have a meaningful impact on portfolio performance
The fixed income world has evolved over the years, with new products and vernacular that can be foreign to the most experienced investors. But even well-established asset classes have their own nuances. Consider, for example, high yield bonds.
High yield bonds are issued by companies judged to be at higher risk of defaulting on debt payments than issuers of investment-grade credits. In return for higher default risk, investors expect to be compensated with higher yields. But not all high yield issuers present the same credit risk. There are, in fact, meaningful differences between the various quality sleeves that comprise the high yield market.Read More