Performance summary

For the year ended February 28, 2021, Class A shares of Invesco Corporate Bond Fund (the Fund), at net asset value (NAV), outperformed the Bloomberg Barclays U.S. Credit Index, the Fund’s broad market/style-specific benchmark.

Your Fund’s long-term performance appears later in this report.

Market conditions and your Fund

Fixed income markets began the year buoyed by positive economic data and the signing of the phase one US-China trade deal. However, initial optimism was dampened by the outbreak of the new coronavirus (COVID-19) that swiftly spread from China to other global regions. Global markets fell sharply as the human and economic cost of the COVID-19 pandemic mounted. As fear of a worldwide recession increased, the US Federal Reserve (the Fed) took aggressive action to support both the domestic and global economy by slashing rates to a range of 0.00% to 0.25%.¹ The unemployment rate reached a peak of 14.7%² while real gross domestic product (GDP) decreased at an annual rate of 31.4%³ in the second quarter of 2020. 

Many economies received fiscal stimulus and very significant monetary stimulus due to the impact of COVID-19. The massive monetary policy response created an environment in which investors embraced risk, and stocks rose globally after a deep rout in the first half of the year. Consequently, some countries were able to achieve some success in controlling the spread and were able to slowly reopen their economies in the third quarter. With a potential vaccine in sight for the end of 2020 or early 2021 the broader bond market, both developed and emerging, ended the year in positive territory. 

The 10-year US Treasury yield continued to decline at the start of 2020 as the Fed adopted a more dovish stance and continued geopolitical uncertainty forced investors to seek higher-quality fixed-income instruments. Elevated volatility levels due to the COVID-19 pandemic and ensuing global recession led to a severe "risk-off" tone in the markets driving Treasury yields even lower. The 10-year US Treasury yield ended the year at 0.93%, 99 basis points lower than at the beginning of

the year.⁴ (A basis point is one one-hundredth of a percentage point.) 

US corporate markets posted gains in the fourth quarter, as positive news on COVID-19 vaccines and strong corporate earnings outweighed investor concerns about political disagreement over a fiscal stimulus package and sharply rising COVID-19 infections nationwide. Cyclical sectors like energy and financials led the way, while real estate and consumer staples lagged. While the US economy rebounded significantly since the pandemic began, the recovery appeared to slow in the fourth quarter with estimates for employment gains and GDP growth down from the third quarter. However, bonds were buoyed by the Fed’s pledge to maintain its accommodative stance and asset purchases, “until substantial further progress has been made” toward employment and inflation targets. 

In the first quarter of 2021, rising 10-year US Treasury yields increased significantly to 1.6%,⁴ its highest level since February 2020, reflecting higher inflation expectations. Consequently, yields have fallen further into negative territory as the Fed remains in its accommodative policy. As vaccine rollouts become more widespread and accessible across the country, along with another fiscal stimulus package, we believe it is likely that we will see an economic rebound later in the year. 

The Fund, at NAV, generated positive absolute returns for the year and outperformed its broad market/style-specific benchmark, the Bloomberg Barclays U.S. Credit Index. 

Security selection in investment-grade corporate bonds was the most notable contributor to the Fund’s relative performance. Security selection in the technology, media & telecom, financial institutions, and consumer non-cyclical sectors also contributed significantly to the Fund’s relative performance, as did an out-of-index exposure to the high yield sector. Security selection within investment-

grade industrials sub-sector served as the most notable detractor to the Fund’s performance. 

The Fund’s duration relative to the broad market/style-specific benchmark contributed to relative performance as interest rates fell meaningfully during the year. Securitized assets detracted slightly from performance as CMBS and ABS gradually recover. 

The Fund may use active duration and yield curve positioning for risk management and for generating excess return versus its broad market/style-specific benchmark. Duration measures a portfolio’s price sensitivity to interest rate changes. Yield curve positioning refers to actively emphasizing particular points (maturities) along the yield curve with favorable risk-return expectations. During the year, duration of the Fund’s portfolio was maintained in line with the broad market/ style-specific benchmark, on average, and the timing of changes and the degree of variance from the Fund’s broad market/style-specific benchmark had a small negative effect on relative returns. Buying and selling US Treasury futures was an important tool used for the management of interest rate risk and to maintain the Fund’s targeted portfolio duration during the year. 

Part of the Fund’s strategy in seeking to manage credit and currency risk during the year entailed purchasing and selling credit and currency derivatives. We sought to manage credit risk by purchasing and selling credit default swaps at various points throughout the year. Management of currency risk was carried out via currency forwards and options on an as-needed basis and we believe it was effective in managing the currency positioning within the Fund during the year. 

We wish to remind you that the Fund is subject to interest rate risk, meaning when interest rates rise, the value of fixed-income securities tends to fall. The risk may be greater in the current market environment because interest rates are near historic lows. The degree to which the value of fixed-income securities may decline due to rising interest rates may vary depending on the speed and magnitude of the increase in interest rates, as well as individual security characteristics, such as price, maturity, duration and coupon and market forces, such as supply and demand for similar securities. We are monitoring interest rates, and the market, economic and geopolitical factors that may impact the direction, speed and magnitude of changes to interest rates across the maturity spectrum, including the potential impact of monetary policy changes by the Fed and certain foreign central banks. If interest rates rise or fall faster than expected, markets may experience increased volatility, which may affect the value and/or liquidity of some of the Fund’s investments.