Amid Market Optimism, Hop On Longer-Duration Bonds

Markets are steadily preparing for the Federal Reserve to begin cutting interest rates in the coming months.

Recent analysis from Invesco chief global market strategist Kristina Hooper evaluated how they responded to economic indicators in March. Year-over-year core PCE numbers for March came in lower than February, with Federal Reserve chair Jerome Powell signaling his satisfaction with the number.

“In short, this was overall a “risk on” quarter as markets largely overlooked disappointing data and hawkish talk from central bankers, despite some initial negative reactions. Markets are discounting what they anticipate will happen this year — that disinflation in Western developed economies will continue and that their central banks will start cutting rates. Markets are also discounting a soft and brief slowdown for the global economy, followed by a re-acceleration. That’s why I believe we have seen a broadening of markets in recent weeks,” Hooper added.

Treasury yields continuing to show strength solidifies the current case for intermediate-duration bond investing. A longer-duration investment can help shield investors from reinvestment risk while enjoying the potential yield benefits from interest rate drops.

Invesco’s library of bond ETFs offers investors a variety of choices for selecting their preferred bond class and duration. For example, investors and traders interested in safer intermediate-duration bonds could consider the Invesco BulletShares 2028 Corporate Bond ETF (NYSE Arca: BSCS). BSCS allocates the majority of its assets into investment-grade bonds that reach maturity in 2028.

Investment-grade bonds can offer a lower default risk while seeking quality returns. The fund is currently up about 3.25% over the last 12 months and has seen more than $700 million in fund flows over the last six months.

Riskier Options

Meanwhile, investors and traders eager to take a little more risk can enjoy the same duration with the Invesco BulletShares 2028 High Yield Corporate Bond ETF (BSJS). BSJS primarily invests in high-yield junk bonds that reach maturity in 2028.

While junk bonds do present a higher risk of default, the performance of BSJS indicates that the risk may be worth the reward. The fund is currently up 9.18% over the last 12 months and has seen $96 million in fund flows over the last six months.

Investors seeking to fine-tune their fixed income shares can utilize the BulletShares family of funds to achieve the mix they desire. BulletShares funds cover bonds with maturity years ranging from 2024 to 2033. The high-yield funds possess net expense ratios of around 42%, while the investment-grade options have expense ratios closer to 10%. Invesco currently has 221 ETFs listed in the United States, representing over $512 billion in assets under management.

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