Insight Invesco Bond Income Plus Q2 2026: Delivering income in an uncertain inflation environment

Invesco Bond Income Plus Q2 at a glance: 

Bond markets showed greater stability in the second quarter compared to the first quarter of 2026. The impact of the conflict in the Middle East started to be seen in inflation data, and there remains considerable uncertainty over long-term outcomes.

 Key takeaways this quarter:

• While the US Federal Reserve (Fed) kept interest rates on hold, bond markets started to anticipate higher interest rates as inflation rose
• The gap between the yields on corporate bonds and government bonds remained low as investors shook off economic fears
• We believe the crisis is unlikely to impact the ability of portfolio companies to repay their debt

How have fixed income markets performed in the second quarter of 2026?

In our view, developed market government bonds were relatively stable in April as investors waited to judge the long-term impact of the conflict in the Middle East on inflation. The US Federal Reserve kept interest rates on hold in April, but the rate-setting committee was unusually divided¹ with disagreement over whether the accompanying statement should hint at future rate cuts. 

Treasury yields started to rise in early May, as Consumer Price Index (CPI) data showed prices starting to edge higher in response to the war in Iran. US inflation climbed to 3.8% year on year, driven by a spike in the price of gasoline.² Economists are now watching closely to see if higher energy costs will start to spread more widely through the economy. 

In the UK, 10 year gilt yields reached as high as 5.2% in late April, as local elections gave rise to speculation over the future of the Prime Minister. However, a weaker inflation report, which showed prices rising less than expected in April, and some stabilisation of the political situation saw gilt yields drop by early June.^{3, 4} That said, they remain significantly above their level in February. In Europe, core inflation has been rising, and the European Central Bank (ECB) raised interest rates in its June meeting.

The corporate bond market has remained steady. The gap between the yields on corporate bonds and government bonds remained low, suggesting investors do not believe companies are at increasing risk of defaults. In our view, investors continue to show little fear over any economic setbacks over the Iran crisis.  

How has Q2 performance affected BIPS investors?

For the time being, the outlook for the bonds we hold has not changed, though we need to remain alert to the implications of a more prolonged and intractable crisis in the Middle East. Persistent higher energy prices are raising costs for some companies and there may be limits to the extent that this can be passed on to consumers. Higher interest rates will also raise borrowing costs for some companies. However, in the Trust, we focus on stable companies with strong balance sheets and reliable business models. 

How has Invesco Bond Income Plus (BIPS) sought to mitigate investment risk in Q2?

A long term perspective is important, alongside careful credit analysis. This analysis helps us to understand the risks inherent in every bond we hold, and judge whether we are properly compensated for those risks. Global diversification remains crucial to stability of returns, while being careful and selective on the sectors, quality and outlook for the securities in the portfolio. 

Perspective

We recognise that there are a range of outcomes for the global economy from here. If the conflict in the Middle East revives or there is continued disruption to international seaways, prompting further spikes in energy costs, it will start to be felt in meaningfully higher inflation and borrowing costs. There are dangers of second-order effects: around one-third of the world’s fertiliser comes through the Strait of Hormuz, for example⁵. If it cannot get to its destinations, it threatens crop yields and food prices.

With this in mind, the Trust has been cautiously positioned so far in 2026. We prefer higher quality corporate bonds, where the risk of default is low. We have also taken advantage of some of the weakness in developed market government bonds. We recognise that our investors rely on the strategy for its predictability of income and capital stability.

Invesco Bond Income Plus Limited

Learn more about the trust.