Global Fixed Income Strategy - July 2025
Macro conclusions from the IFI Summit
Twice a year, investors from across the Invesco Fixed Income platform gather at the IFI Global Investors’ Summit to discuss and debate their views on global macroeconomic trends. Macro themes play an important role in IFI’s investment process and our framework of “macro factors” focused on growth, inflation and policy, helps us project macro trends and interpret market movements. At our June 9-10 Summit, a panel of investors provided their views on global macro developments. Below we share their main conclusions.
US: Consumer spending props up data but sentiment signals caution
Current US consumer confidence indicators are at levels typically associated with recessions. But actual consumption expenditures are healthy and overall growth is positive. What could be causing this disconnect? We looked to the corporate and consumer sectors for possible answers.
Corporate behavior
At the core of our growth outlook is the recognition that businesses and consumers alike are operating under heightened uncertainty. The shifting regulatory landscape - particularly trade policy and tariff implementation - has weighed heavily on corporate sentiment. As a result, companies are likely to remain cautious, delaying new investment and hiring decisions.
Corporate profitability has been solid in the past year, and many firms termed out their debt during the low interest rate environment of the pandemic years. So, solid credit fundamentals suggest that firms should be able to manage any potential economic slowdown. However, we have seen signs of cautious corporate behavior in recent months, likely due to uncertainties related to tariffs and other policy changes. Capital goods orders and investment plans among small businesses have declined, and CEO confidence is subdued, indicating a general reluctance to invest. This caution is also translating into hiring decisions. Recalling the difficulty finding workers during and immediately after the pandemic, we do not expect companies to lay off workers easily. But neither do we expect much additional hiring in the current uncertain environment. So, while we do not expect initial unemployment claims to rise sharply, we would not be surprised to see rising numbers of continued claims and permanent job losers.
Consumer behavior
Consumer confidence remains weak, yet spending has held up. This apparent contradiction is best explained by anticipatory behavior: just as companies are rushing to finalize capital spending, households are front-loading purchases in tariff-exposed categories. However, the recent strength in consumer spending likely reflects timing rather than sustained momentum. As households bring forward purchases to avoid future price hikes, this behavior may lead to softer demand in the months ahead. Moreover, the conditions that supported spending during the pandemic – labor security and ample financial buffers – no longer exist, especially for lower-income households.
Inflation, growth and the Fed
What does this consumption pattern and potential tariffs mean for inflation? As tariffs seep into goods pricing, we would expect core consumer price inflation (CPI) to rise by the end of the year to around 3.5% and core personal consumption expenditure inflation (PCE) to around 3.6%. We expect services prices to continue to dis-inflate and expect overall inflation to peak and then cool in 2026.
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Non-investment grade bonds, also called high yield bonds or junk bonds, pay higher yields but also carry more risk and a lower credit rating than an investment grade bond.
Mortgage- and asset-backed securities, which are subject to call (prepayment) risk, reinvestment risk and extension risk. These securities are also susceptible to an unexpectedly high rate of defaults on the mortgages held by a mortgage pool, which may adversely affect their value. The risk of such defaults depends on the quality of the mortgages underlying such security, the credit quality of its issuer or guarantor, and the nature and structure of its credit support.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
