How is the Fed changing its approach to inflation?

A policy shift toward average inflation targeting may be positive for global markets

James OngTime to read: 4 min

Taken together, the recent combination of testimony, press releases, and other communications suggest that the US Federal Reserve (Fed) may be considering a shift to average inflation targeting. If true, this could mean the Fed would move away from trying to engineer a sustained, specific inflation level and would be free to allow above-target inflation for a period before using rate hikes to slow the economy. Such a shift could certainly change how the Fed reacts to new economic and market data. Although there are still many questions around this possible new framework, Invesco Fixed Income believes it would have positive implications for US and global macro performance and could benefit risk assets.

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Are investment grade convertibles on the rise?

After declining for a decade, these issues have been popular in 2019. What could this mean for the asset class?

Time to read: 3 min

Since the beginning of 2019, we’ve seen robust new issuance in the US convertible market. Year to date, total proceeds are above the $11 billion mark1, roughly equivalent to the same period in 2018, a year that ended with approximately $51 billion2 of new paper, setting a decade-high mark. Equally as important for our market is the significant representation of investment grade-rated converts this year. Almost $5 billion, or nearly half of dollars raised by convertible bonds and preferred offerings this year, are rated investment grade.3

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The Fed delivers a dovish message

The FOMC projects zero rate hikes this year, says economic fundamentals are still strong

Time to read: 2 min

Going into the Federal Reserve’s (Fed) March 19-20 policy meeting, markets were focused on three main themes: economic sentiment, the so-called “dot plot” and guidance on balance sheet runoff. The outcomes were considered to be dovish by markets. In addition to leaving its policy rate unchanged, the Fed revised down its US growth outlook and announced plans to end its balance sheet runoff. Initial market moves pointed to easier financial conditions, with real rates trading lower, risk assets higher and the US dollar weaker. Overall, Invesco Fixed Income expects these developments to be positive for credit risk assets.

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Should high yield investors be concerned about ‘fallen angels’?

The BBB bond market is growing, but we believe that worries about significant downgrades are overblown

Time to read: 5 min

Earlier this year, our investment grade colleagues discussed the potential implications of the growing BBB segment of the US investment grade market (US investment grade credit: A buy or a bubble?). In high yield, we have also received questions regarding the growth of BBBs. In this blog, we address some important questions: Are we likely to see significant downgrades among these bonds into high yield territory (BB and below)? Would the high yield market be able to absorb these “fallen angels” and what would be the overall impact on high yield? 

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US job growth disappoints for February, but long-term trends are still strong

Invesco Fixed Income doesn’t expect this reading to disrupt the Fed’s policy in the near term

Time to read: 2 min

US nonfarm payrolls increased by a disappointing 20,0001 jobs in February — markets had expected an increase of 180,000.2 Contributing to the disappointment was the performance of key sectors such as construction, leisure and hospitality, education and health services. We at Invesco Fixed Income do not put too much weight on a single payroll print (as emphasized in our January blog: Strong employment data may support Fed flexibility). Our research has shown that the longer-term employment trend has been a better predictor of economic growth.

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US dollar may weaken due to renewed global growth convergence

Invesco Fixed Income shares its views on currencies around the world

Time to read: 2 min

US dollar: Underweight.

We continue to expect the US dollar to weaken against a backdrop of renewed global growth convergence. This will likely be driven by the unwind of the US exceptionalism theme of 2018 and the pivot toward a more dovish Federal Reserve policy going forward. Additionally, US budget and current account deficit concerns will likely persist and could be negative for US dollar performance.

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