We can expect a long bond yield rise of the magnitude we’ve seen in 2016 on average every three years, but that doesn’t ease the pain of capital losses in the last six months.
It’s easy to criticise governments for a lack of action on social issues, but here’s better news on the potential to grow affordable housing using the capital markets.
The yield quoted for a bond can be calculated in many different ways, depending on its characteristics or the investment horizon of the bond holder. Which yield are you buying?
Historically low bonds rates have boosted asset prices, but rates are likely to keep rising from this point. While this will cause pain over the next few years, it’s a positive longer term as higher rates mean higher returns.
When bond rates are low, the search for yield by investors and lower discount rates inflates other asset prices. However, there are far more factors affecting share prices than just bond yields.
In challenging market conditions, bond investors use two main strategies to increase returns: investing for longer or increasing risk. This list highlights some of direct bond investing trends right now.
Despite the global bond duration index nudging an historic peak of 7 years, portfolios can still benefit from holding exposure to fixed interest investments as long as investors are aware of the impact of duration.
A counter-view on why bond yields are so low, and how the market can still use and interpret what bonds are telling us. Plus Roger responds that different opinions make a market, and that’s good.
In previous cycles, bond yields provided a strong indication of the general health of the economy, but huge coordinated actions by central banks are changing that paradigm. Watch how you read the signals.
Keeping superannuation savings in term deposits will protect the capital but doesn’t optimise the retirement outcome. There are many alternatives that should provide higher sustainable income over the long term.
The market has seen a major widening of credit spreads as investors demand greater compensation for liquidity risk. Has the market reached the point where it offers value?
When a company fraud is uncovered there are many losers, and companies are not run to benefit bondholders. The main protection against such unforeseeable risks is to maintain a well-diversified portfolio.
A common observation at the moment is that if interest rates ‘can only go up’, why hold bonds? While prices fall as rates rise, there is a role for various maturities in a diversified portfolio.