Let's get to the big story.
Breakdown.
It has been a brutal year to navigate the fixed income markets.
Wild swings in the interest rate environment are sparking bond price volatility across nearly every sector, and the immediate catalyst is the ongoing war in Iran and the resulting shock to global oil prices.
But that geopolitical chaos is just adding fuel to an already burning fire.
The bond market is also buckling under a mountain of new debt issuance as well.
As inflation pressures and uncertainty over what the Fed will ultimately do that.
Well joining me this morning to discuss where the real money is moving in fixed income is Jason Bloom, the Head of Fixed Income ETF Strategy at Invesco .
Jason, great to have you here.
Thank you so much for joining me.
Thanks for having me, Rey.
Well, it has been quite the year so far in 2026.
So give us your take on the macro environment and why we are seeing this move in fixed income.
Sure, well, once again the Von Bulls have had the rug pulled out from underneath them.
It's sort of like Charlie Brown trying to kick the football the last 3 or 4 years.
This time it wasn't so much a misunderstanding of which way the economy was going, but obviously the shock of commodity prices rising as a result of the conflict in the Middle East.
For the most part, I think again what surprised the market is the continued resiliency in the economy.
And so when you look at the movements in rates, it's been somewhat of a parallel shift upwards.
In other words, the market is more worried about inflation than it is about recession, and that's a little bit different than the market's sort of foreboding view of economic growth over the last 3 years.
The market is coming to understand that this economy has just an incredible amount of momentum, but Momentum combined with higher commodity prices, whether it's metals, energy, food, leads to inflation generally and earnings season has kicked off here in the US and we've been hearing that word resilient from some of the C-suite executives at the big banks.
But talking about what this means for the fixed income market, tell me what we're seeing in short duration as well as floating rate ETFs and why now.
Sure, we've seen a nice resurgence of flows back into the floating rate and short duration.
Obviously if you can get that duration in the 0 to 1 year range, it dramatically improves your risk reward in an environment where rates are rising or they're at significant risk of rising.
So BKLN.
Which is our ETF that holds senior secured loans, sort of a conservative way to get high yield exposure in an environment where you're a little bit worried about which way things are going to go.
Lots of flows into T-belt, ETFs, TBLL is one of ours as well, and then GSY, which is just a traditional ultra short, all of those are sort of our top performing and our top flowing ETFs over the last month, which was a reversal of how the year started off.
And we are seeing demand for extremely short duration US Treasury and this is also the time of year just given that tax day was yesterday.
Investors across the country are paying attention to their portfolio.
So tell us what your expectations are not just heading into the upcoming quarter or second half, but beyond.
Well, I think.
Given the focus on rising rates and inflation, we don't want to throw out all the babies with the bathwater, so you know abandoning long duration isn't something that we believe in.
Overweighting it certainly hasn't been a good risk reward lately, but we see a lot of value in the Munich curve, especially out in that 10 to 20 year part of the curve.
You're seeing taxable equivalent yields well north of 6%, which compares quite favorably to Treasury's with the same maturity.
So we think that there's some opportunity there, but otherwise we like short duration, high yield, short duration investment grade sort of barbell that with some long duration immunity, I think is a nice balance for investors who have to be prepared no matter what the outcome.
And I'm glad you brought up Muni's because that is an area that people are paying attention to.
So can you elaborate on the risk reward for Muni's here?
Sure, I think that people sometimes tend to forget that Muni's, on average, most portfolios, especially ours, are around A A quality.
If you look at the default rate in Munis versus the default rate in corporates, it's a tiny.
Fraction historically, so Muis, while they tend to have more volatility in times of stress than Treasuries, from a credit default perspective, they're still a great place to hide out or a great place to find some really attractive yields for the taxable investor, of course in the US and so once again.
Long duration tends to be the ballast in the portfolio if the economy goes south, so we don't believe that investors should abandon taking out any insurance against that.
So we see that value in Muis versus owning treasuries and quite frankly, the way the fiscal situation is going with the US government right now, some munis are probably in better shape than they are.
And finally, before I let you go, 2026 is a midterm election year, and as you mentioned, there are a lot of undercurrents as well as headlines that we have to sift through.
So when it comes to the central bank in terms of monetary policy, what is your expectation not just for 2026 but also in the upcoming year?
Well, you know, despite all the hand wringing over the politics over the last year, the Fed is, I think.
Continue to behave as we would have expected a responsible Fed to behave.
Whether you agree or disagree with their policy, right, it's still a committee vote and so we think that that's more noise than substance when it comes to trying to forecast what the Fed is going to do this year.
They don't know what they're going to do.
It's data dependent, and so we'll just kind of keep our eyes on the ball there.
Well, Jason, it was great having you on the show this morning.
Thank you so much for sharing all of your insights as well as your perspective.
Thanks for having me.
Thank you.
