Investment Insights from Invesco

Jason Bloom from Invesco suggests that this year presents investors with a chance to secure steady income while navigating the Federal Reserve’s decisions without surprises. As the Fed prepares for a meeting this week, it is largely anticipated that interest rates will remain unchanged after a quarter-point reduction in December. Although the central bank has only made one rate cut in 2026, market participants are now predicting two additional quarter-point cuts this year.

Bloom, who leads fixed income ETF strategy at Invesco, believes the market’s interpretation of the Fed’s forthcoming rate cuts might be misplaced. He pointed out, “It’s challenging to evaluate the macroeconomic indicators right now and justify a rate cut.” He emphasized the possibility of future rate increases, which necessitates balancing one’s portfolio with some hedging strategies.

In this context, he identifies floating-rate investment-grade bonds and floating-rate bank loans as significant opportunities. He explained that while bank loans hold senior collateral status in the capital structure, they are actually more exposed to defaults compared to high-yield bonds. On a positive note, Invesco’s balance sheet seems robust. The Invesco Senior Loan ETF (BKLN) offers a 30-day SEC yield of 5.9% along with a net expense ratio of 0.65%.

Bloom highlighted that floating-rate assets attract attention when investors are wary of rising short-term interest rates. “The current valuation is appealing, and the yield is quite enticing,” he remarked. Furthermore, if the economy continues to thrive, there’s potential for further appreciation as markets begin to anticipate Fed rate cuts later in the year.

With the U.S. dollar weakening, Bloom also sees promise in emerging market bonds. “A weaker dollar significantly stimulates emerging economies,” he noted, adding that many companies and even governments in those markets often borrow in dollars.

Focusing specifically on emerging markets—excluding China—he mentioned that for those in higher tax brackets, municipal bonds provide quality exposure and typically yield better tax-equivalent returns than U.S. Treasuries for equivalent risks. For instance, the 10-year Treasury currently yields around 4.21%, whereas the tax-equivalent yield for longer-dated municipal ETFs stands at 6.16%.

Bloom advised those looking to invest in high-quality companies over the long term to plan for holding these investments until maturity. He cautioned against limiting selections to funds that track the Bloomberg U.S. Aggregate Bond Index, which heavily favors U.S. Treasuries. “Diversification is essential,” he mentioned, suggesting that incorporating variable rate strategies, high-yield, government, and international bonds can enhance returns. He concluded that avoiding an overemphasis on Treasuries can improve bond returns, noting that core-plus bonds offer another avenue for diversification.