Invesco Canada blog

Insights, commentary and investing expertise

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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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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Assessing the unknowns as coronavirus spreads

Developments in the last week have made it clear that the spread of the COVID-19 coronavirus is unlikely to be contained and that it is something the world will likely have to deal with on an ongoing basis. Unfortunately, there are still many unknowns about the virus including how it spreads, what the fatality rate will prove to be, and whether scientists will be able to control it somewhat in the near future through improved treatment or a vaccine. This uncertainty is beginning to change people’s behaviour and is having an impact on the markets.
 
The spread of this virus is first of all a humanitarian issue, but for the balance of this note we will discuss the economic and market impact of the spread.

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Fed continues gradual hikes

The U.S. Federal Open Market committee (Fed) hiked the federal funds rate by a quarter percentage point at Wednesdays meeting. This is the third rate hike this year, putting the new target range at 2.00%-2.25%. The market had fully priced in today’s move well ahead of the meeting.

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Federal Reserve hikes with upbeat outlook

The U.S. Federal Open Market committee (Fed) continued their recent gradual hiking cycle by increasing the federal funds rate by 0.25 percentage points at today’s meeting. The target range after the hike is now 1.75%-2.00%. The financial markets had been fully expecting today’s move.

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The Fed stays the course under its new leader

The Federal Reserve (Fed) raised interest rates by a quarter of a percentage point as expected on Wednesday and signaled two more rate hikes for 2018. It also released its Summary of Economic Projections (SEP) for the next few years, which suggests that the Fed is optimistic regarding the future performance of the U.S. economy.

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Above-trend growth could cause U.S. inflation later in 2018

Employment growth has been strong enough that the Bank of Canada (BOC) hiked its overnight target rate to 1.25% in January.1 The BOC statement attempted to balance the view that growth was near capacity with concerns that raising rates too quickly could cause the economic expansion to stall. The 10-year yield has broken through its previous peak of 2.15% on the growth story and a modest pickup in inflation.2 We believe yields should continue to move higher from these levels.

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What does market volatility mean for fixed income?

Market expectations of inflation have risen in recent days, after signs of wage growth – often seen as a harbinger of inflation – appeared in the January jobs report. We at Invesco Fixed Income believe investor concerns that inflation is finally showing signs of life have helped drive interest rates higher and impacted credit markets, where worries over higher interest rates (and their potential impact on companies) have caused declines in stock markets and other risky assets.1

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A rising tide for fixed income?

In my recent blog on the impact of the tax reform, I explained why I believe the new tax law should be extremely supportive of the U.S. investment grade (IG) bond market, including provisions that could lead to reduced supply. Looking beyond IG, the news appears to look good for other fixed income sectors as well.

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BoC hikes again, citing near-capacity growth

The Bank of Canada (BoC) announced today it was raising the target overnight rate by 0.25% to 1.25%. The last time the BoC hiked its target rate was at the September 6 meeting. Market expectations for this rate hike began to increase several weeks ago, so it was almost fully priced into the market.

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Tax reform: A year-end bonus for fixed income?

Despite the near non-stop drama of the legislative process, we ended December with the U.S. Tax Cut and Jobs Act of 2017 being signed into law. What does this mean for fixed income investors? In my opinion, the news is overwhelmingly positive for the U.S. investment grade market; here are four reasons why.

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Fed maintains a slow and steady approach

The U.S. Federal Open Market Committee (the Fed) raised the target Fed Funds Rate by 0.25% to a range of 1.25%-1.50% at today’s meeting. This is the third rate hike this year, although the first one since the Fed announced it was reducing the size of its balance sheet at the September meeting.

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Interest rate outlook: Bank of Canada to pause

After raising the target overnight rate 0.25 percentage points at each of the previous two meetings, the Bank of Canada (BoC) kept the rate unchanged at its meeting on October 25, 2017. While growth has remained strong, it has slowed from the second quarter and the BoC appears ready to give its two previous rate hikes time to filter through the economy before taking further action. Additional uncertainty around the breakdown in North American Free Trade Agreement trade negotiations leaves the BoC cautious regarding future hikes. The Canadian 10-year yield appears to have peaked for the moment and yields have several reasons to fall from current levels, in our view.

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Interest rate outlook: Bank of Canada likely to raise rate again

The Bank of Canada (BoC) has hiked interest rates at two consecutive meetings, bringing the overnight benchmark rate to 1.00%.1 GDP growth and employment trends remain strong, while inflation has stayed below the BoC’s 2.0% target. The Canadian 10-year government bond yield has followed an upward trend after hitting its lows in the second quarter. We believe higher rates are likely.

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