Invesco Canada blog

Insights, commentary and investing expertise

Fed to purchase corporate bonds through ETFs

On March 23, the U.S. Federal Reserve (Fed) announced its intent to acquire investment grade corporate bonds. The purpose of the communication was to support a market in which sharp price declines were threatening to disrupt the normal functioning of primary (new issue) and secondary market activities. On April 9, the Fed announced an expanded definition of bonds eligible for purchase to include those with investment grade ratings as of March 23, even if they had since been downgraded to high yield, as long as they remain in the BB category.

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Need some good news? Markets, economy do offer some

John Krasinksi of The Office and Jack Ryan fame recently initiated a web series entitled “Some Good News.” It’s a news program devoted entirely to good news. I wish I had thought of that. Since I didn’t, I’m left to borrow the concept. This blog, and subsequent ones in this series, will be devoted entirely to producing lists of good (or less bad) news. After all, as Dwight Schrute says in the episode of “The Office” in which Jim Halpert mockingly takes on Dwight’s persona, “Imitation is the most sincere form of flattery. So, I thank you.”

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Portfolio managers examine the impact of COVID-19

As the number of COVID-19 cases continues to rise, so do unemployment rates. And so the world continues to look for balance between implementing public health measures, offering fiscal and monetary stimulus, and opening up economies.

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Low-wage job losses fuel the U.S. stimulus debate

As expected, the U.S. Employment Situation Report for April was abysmal. Unemployment rose dramatically as pandemic lockdown measures were implemented across the U.S., with hospitality and leisure posting the biggest job losses. Amidst all the terrible data, there was one obvious and glaring takeaway: Job losses were concentrated among low-wage workers. In fact, so many lower-paying jobs were lost that wage growth rose markedly, underscoring how hard hit lower-income workers have been by this pandemic.

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Video: Bank loans’ senior, secured status has helped during crisis

Investors who’ve been rattled by volatility in their fixed income portfolios may be seeking assurance about their underlying holdings.

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How the shutdown might affect the U.S. economy and markets. (Answers to FAQs)

Our market strategists weigh in on what drove a recent market rally, how the shutdown will affect the economy and markets, and what additional government support may be coming.

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Tracking China’s recovery and a dire U.S. earnings season

Last week was another momentous one for economies and markets, with particular attention being paid to the economic recovery in China, earnings season for U.S. stocks, and the Federal Reserve’s views on interest rates. Below, my colleagues from the Global Market Strategy Office and I answer some of the most pressing questions we have received from clients in recent days:

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Video: Finding opportunities in investment grade bonds

The spread of COVID-19 has created unprecedented market turmoil. While the equity space garners the most headline attention, it’s been a very volatile time for the fixed income markets, particularly within the investment-grade space. In fact, over the last few weeks, we’ve witnessed six out of the 10 largest one-day moves in history.

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Where do portfolio managers see opportunities in today’s environment?

The three-pronged fight against COVID-19 and its economic impact continues. Central banks are providing monetary policy support to keep banks and markets functioning, national governments are providing fiscal policy support to consumers and businesses, and governments at all levels are taking public health policy steps to contain the spread of the virus. (Not to mention the tireless dedication of the health care workers on the front lines and the scientists searching for treatments and vaccines.)

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Where do stocks and bonds go from here?

In last week’s blog, members of Invesco’s Global Market Strategy (GMS) team in Hong Kong, Italy, London, Tokyo and New York shared their on-the-ground insights of the fight against coronavirus from a health care, monetary, and fiscal perspective. Today, we take a deeper dive into the potential implications of the pandemic on U.S. stocks and bonds, as well as the GMS team’s view of asset allocation considerations.

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The coronavirus “sudden stop” needs credit support

The U.S. economy is currently experiencing a “sudden stop” in growth, as efforts to combat the spread of the coronavirus increase. Social distancing will likely have a direct impact on workers and small businesses across the economy. Invesco Fixed Income’s expectations currently are for the U.S. and European economies to contract sharply in the second quarter this year, and this estimate is subject to further revision down if the virus continues its aggressive spread. This very sharp contraction is pressuring all players in the U.S. economy and creating a funding need for corporations, small businesses, and households. It is vitally important that funding needs be met to ensure that the exogenous economic shock the U.S. economy is experiencing does not migrate into a financial crisis, which would likely further pressure economic growth.

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Why we embrace “Core Plus”


March 17, 2020
Subject | Active management

Canadian fixed income investors benefit from the one of the highest credit quality bond markets globally.1 In addition to the incremental yield captured by owning Provincial and Municipal debt, the corporate bond market is made up of well-managed investment grade rated issuers. Unfortunately for investors who choose to own the broadly followed Canadian Aggregate bond index, corporate debt only makes up 28% of the total.1

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Assessing the globe’s three-pronged policy response to coronavirus

The coronavirus pandemic is spreading in Europe, the U.K., Canada, and the U.S. – and economic activity is grinding to a halt in some sectors as discretionary spending and activity have been sharply reduced in favour of basic needs. Real-time indicators of demand such as restaurant patronage, traffic, and cellphone mobility data are all down dramatically on a year-over-year basis across several major regional and local economies.
 
The market response has been equally sharp. Stocks rose and fell dramatically last week, especially on Thursday when the Dow experienced its largest drop since 1987 and the STOXX® Europe 600 Index experienced its largest drop ever. The bond market experienced dramatic volatility as well, with the 10-year U.S. Treasury yield falling to as low as 0.4% last week.1 Markets appear to be experiencing a lack of confidence in the policy responses in Europe and the U.S., and that seems to be continuing into this week.
 
One of the questions we have been receiving lately is: What is the appropriate policy response? There’s a lot embedded in that question. In the past, we have written about the importance of a three-pronged policy response to coronavirus: 1) public health policy to contain the virus, 2) monetary measures to ensure financial liquidity and functionality, and 3) fiscal support to contain the real economic damage. Combating the crisis from these three angles remains critical today — here’s how we assess progress in these areas across the globe.

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Could the surge in market volatility signal the end of the current market cycle?


March 10, 2020
Subject | Coronavirus impact | Macro views

Last Friday, Russia surprised markets by refusing to the production cuts the rest of OPEC+ supported – cuts that were needed to stabilize oil prices in the face of the coronavirus-related hit to global demand. Saudi Arabia responded over the weekend by announcing an actual increase in oil production. This comes on the heels of an announcement by Italy effectively shutting down much of northern Italy.

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stock-ticker

Fed cuts rates in surprise move


March 3, 2020
Subject | Macro views

In a surprise inter-meeting move this morning, the Federal Reserve (Fed) announced a 50 basis point cut in U.S. interest rates to the range of 1% to 1.25%, attributing the cut to the evolving economic risks from the coronavirus.
 
The Fed decided to cut rates on its own, without a coordinated move by other major central banks, after the G-7 conference call earlier today.  The Fed had the most room to move, as U.S. rates were higher than those in the other G-7 countries.
 
The market had been expecting a rate cut at the next Federal Open Market Committee meeting, but the inter-meeting timing of this cut caught the market by surprise.  Immediately following the announcement, fed fund futures rallied, indicating that the market expects to see additional rate cuts, and short-term rates fell faster than long-term rates, steepening the yield curve.
 
The economic impacts of the coronavirus are mostly yet to come in the United States and are highly uncertain.  From that perspective, we view the Fed’s move as a type of “insurance cut.”  Going forward, we expect markets to be driven by growth expectations in the face of the spreading virus.  The Fed move on its own will likely have little impact on the path for economic fundamentals in the near term, and hence the ultimate impact of this move on risk markets is unclear at this stage.

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Coronavirus knocked our 2020 outlook off track. But maybe not for long.


March 3, 2020
Subject | Coronavirus impact | Macro views

It wasn’t long ago that the ink was drying on our 2020 outlook. In it, we touted the conclusion of the third major policy-driven growth scare (along with 2012’s European debt crisis and 2015’s Federal Reserve [Fed] rate hike) of the elongated business and credit cycle. Stable growth and supportive policy were to be the theme of 2020. The Fed had already overturned the 2018 rate hikes and had successfully eased financial conditions, while the Trump administration had inked a Phase 1 trade deal with China. China, for its part, was working to stimulate its economy. The January reading of the Institute of Supply Management Manufacturing Purchasing Managers Index, as good of a leading indicator of economic activity as any other, would have traditionally been viewed by us as a resounding affirmation that the growth scare had passed. “Risk on!” we would have rejoiced.

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As markets struggle, where do global economies go from here?


March 2, 2020
Subject | Coronavirus impact | Macro views

We have seen a rapid and dramatic market correction as a result of the news flow around the COVID-19 outbreak. This appears to be an overreaction, in my view – but I would not be surprised to see the sell-off continue as uncertainty remains high on key issues: ease of transmission, length of time a person can be infected and contagious without showing symptoms, mortality rates, and length of time before the infection rate stabilizes globally.

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