Convertible securities: What does the speedy pace of issuance mean for investors?

New issues mean new opportunities

Time to read: 2 min

May was the busiest month for convertible security issuance in the US market in almost four years — 21 new deals were completed, generating nearly $9 billion in proceeds for issuing companies.1 While the recent torrent of new issues could put some pressure on valuations in the convertibles market, the Invesco Convertible Securities Team believes this pickup in issuance is a healthy development for the asset class overall, as it gives active managers such as ourselves the ability to pursue new investment opportunities.

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Five risks that could affect fixed income markets

Macro and credit fundamentals look strong, but greater volatility appears likely

Rob WaldnerTime to read: 5 min

Invesco Fixed Income is positive on fundamentals for the rest of this year. Global growth is solid and inflation is tame. As central banks have pivoted away from stimulus, tighter financial conditions have hurt risky assets. But major central bank policies are still generally easy — we expect the Federal Reserve to tighten gradually, and the runway for other central banks to normalize policy is still long. Nevertheless, political uncertainty, trade tensions and a sell-off in emerging markets have challenged investors in recent months. We expect these factors to generate further volatility and believe caution is warranted. However, we believe greater volatility will generate new opportunities for fixed income investors against a backdrop of solid macro and credit fundamentals. Below are five risks we are monitoring.

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Interest rate outlook: US inflation should peak this summer, resulting in one more 2018 hike and then a pause

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US:

Neutral. US growth remains strong, accelerating in the second quarter versus the first quarter’s lackluster 2.2% performance.1 We expect 2018 growth of around 2.8%, with strong contributions from capital expenditures and consumption. Core inflation continues to be benign, and we see it peaking in the next two months at around 2.2%. After that, softer rental and service costs should drive it back below 2%. In our view, the US Federal Reserve will hike one more time this year before pausing in response to declining inflation. Strong growth and lower-than-expected inflation point to a 10-year Treasury yield of around 3%. However, supply dynamics will likely begin to shift in the third quarter as the Treasury begins to issue more long-term debt. This may pressure the Treasury yield curve steeper.

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Currency outlook: US dollar volatility could become a concern as global central banks remove stimulus

Invesco Fixed Income shares its views on currencies around the world

Time to read: 2 min

US dollar:

Underweight. We expect the strong global growth environment to drive the US dollar weaker over the long term. Global monetary policy should converge as the US Federal Reserve (Fed) nears the end of its tightening cycle and other major central banks begin to normalize. As this occurs, volatility in the US dollar could become a concern, as the Fed is likely to remain consistent in its tightening path while other central banks navigate the early stages of removing monetary stimulus.

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European Central Bank plans to wind down quantitative easing

Interest rate hikes to remain on hold for at least a year

Time to read: 2 min

The European Central Bank (ECB) communicated its plan today to wind down its asset purchase program (quantitative easing, or QE) by the end of this year. The ECB announced it would begin a three-month period of “tapering” in October, reducing its bond purchases to 15 billion euros per month from a current level of 30 billion. The ECB said it will continue to reinvest the principal from its holdings for an extended period of time in order to maintain favorable liquidity conditions and ample monetary accommodation. We at Invesco Fixed Income believe this plan should continue to support asset prices and ensure a smooth normalization process.

Interest rates to remain steady

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Fed raises rates for the second time this year

Summary of economic projections anticipates improved growth and a lower unemployment rate

James OngTime to read: 2 min

The Federal Reserve (Fed) hiked rates by 0.25% for the second time this year, lifting the range for the federal funds rate to 1.75% to 2.00%. The statement that accompanied the meeting reflected a strengthening of the economy. The Fed also increased the rate of interest on excess reserves by 0.20% with the intent of moving the effective federal funds rate closer to the middle of the band.

The Fed’s summary of economic projections (SEP) showed improvement in its forecast of growth and a lower expected unemployment rate. The most surprising change in the SEP was a

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