LIVE MARKETS-Invesco snips back junk-bond exposure as spreads stay 'too tight'
Invesco has downgraded U.S. high yield corporate bonds to 'underweight' due to tight spreads amid a slowing economy. Paul Jackson, Invesco's global head of asset allocation research, noted that geopolitical risks and low yields on longer-duration assets are concerning. The Federal Reserve's recent rate cut and potential future cuts could impact equity and high yield markets. However, Jackson sees signs of global economic acceleration, suggesting cyclical assets may perform well into 2026. U.S. economic data showed faster growth and a drop in jobless claims, affecting rate-cut expectations.
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INVESCO SNIPS BACK JUNK-BOND EXPOSURE AS SPREADS STAY ‘TOO TIGHT’
Invesco downgraded U.S. high yield (HY) corporate bonds to “underweight” to reduce risk in its asset allocation model, the investment management firm said in a report on Wednesday.
The spread on high yield corporate bonds in the U.S. is “too tight,” especially as the world’s largest economy is slowing, said Paul Jackson, global head of asset allocation research at Invesco.
Geopolitical risks and valuations favor lower duration and defensive assets, which in turn has pushed yields on cyclical, longer-duration assets such as HY bonds and equities below historical averages, Jackson said.
A deteriorating jobs market prompted the Federal Reserve to deliver a 25 basis point cut last week, its first this year, and the central bank pointed to potential cuts at its upcoming meetings.
If the slowdown “goes too far, it could jeopardize US equity and high yield markets,” said Jackson.
Still, Jackson says that the global economy appears to be accelerating, citing leading indicators and manufacturing activity surveys, as central banks cut rates, which could lead to cyclical assets performing well into 2026.
Markets found some comfort in U.S. economic data on Thursday that showed the economy grew faster than previously thought in the second quarter, and weekly jobless claims fell last week, prompting a reassessment of rate-cut expectations this year.
(Purvi Agarwal)
EARLIER ON LIVE MARKETS: US FUNDING BATTLE MAY BE KEY TO TREASURY MARKET DIRECTION CLICK HERE THURSDAY DATA DOWNPOUR: GDP, JOBLESS CLAIMS, DURABLE GOODS, ET AL CLICK HERE WALL STREET SLIDES FOR THIRD DAY AS RATE CUT BETS EASE CLICK HERE RETAIL INVESTORS HOLD STEADY AS WALL STREET CLIMBS CLICK HERE THE AI INVESTMENT THEME: RISKS LOOM, BUT NOT A BUBBLE CLICK HERE CITI ON EU AUTOS: ‘NO SECTOR IS EVER UNINVESTABLE’ CLICK HERE EUROPEAN SHARES SOFT, REMAIN IN NARROW RANGE CLICK HERE EUROPE BEFORE THE BELL: FUTURES STEADY, MARKETS AWAIT CATALYST CLICK HERE STOCKS TAKE A BREATHER CLICK HERE
Early Trade snapshot Sept 25
