Invesco’s Justin Danfield on Risk Mitigation for Bond Investing

While markets mull over when the Federal Reserve will begin rate cuts, investors are evaluating where to allocate investments.

Justin Danfield, Fixed Income ETF Strategist at Invesco, noted that bond investing presents an attractive option for investors. Danfield participated in a panel during VettaFi’s Fixed Income Symposium on April 18.

Noting that 10-year Treasury yields have been approaching 500 basis point gains, Danfield asserted that the current economic environment presents an opportunity for investors to harness bond investing.

“It really gives investors another bite at the apple to add high-quality U.S. investment-grade corporates at levels that they call in the mid-500 basis point yield-to-maturity range, that they can lock in for the next seven to 10 years,” Danfield added.

Risk Management

Evaluating potential risk for bond investors, Danfield advised investors to stray from staying too short or being overconcentrated within a portion of the yield curve. Specifically, Danfield noted that overconcentration on the short end of the curve can present risk. He added that reinvestment risk remains high, especially in regards to “not taking advantage of yields on the intermediate portion of the curve.”

Instead, Danfield advised for investment diversified across the yield curve. He also recommended locking in yields due to the difficulty of timing the top-end rates.

Jason Duko, Executive Vice President and Portfolio Manager at PIMCO, also participated in the panel. Duko noted that while the economy is strong and the Federal Reserve is not urgently forced to cut rates, high rates will begin to impact inflation down the line. Duko advised that while yields are showing strength right now, the market will eventually cool down.

“I think the market’s appropriately priced for the moment, but I think the percentage bet of the direction of travel is going to be lower for yields, not higher,” Duko added.

Bond Options

Discussing bond areas worth taking some risk on, Danfield noted that bank loans remain a valuable option. Specifically, Danfield highlighted the Invesco Senior Loan ETF (BKLN). Danfield touted the fund for yielding roughly 800 basis points in an investment product with lower volatility than high-yield bonds. Additionally, Danfield noted that the fund pairs well with a core plus or core bond portfolio to provide balanced curve exposure.

For traders seeking guidance on how to manage investments within the uncertain market, Danfield recommended an active management approach. Highlighting the Invesco Total Return Bond ETF (GTO), Danfield discussed how the fund mixes bottom-down and bottom-up fundamental research with additional components for sub-sector exposure.

For more news, information, and analysis, visit the Innovative ETFs Channel.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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