LIVE MARKETS-Invesco snips back junk-bond exposure as spreads stay 'too tight'
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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)
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