Investors beware: Bonds are back to offering more attractive valuations and higher income than equities. Furthermore, in addition to historically being less volatile than equities, bonds also deliver solutions capable of reducing risk and potential advantages in terms of diversification.
Five reasons to consider bonds
Translated: it is the ideal time to consider the bond sector, as he says Benoite Anne, Lead Strategist Investment Solutions Group di MFS IM. The expert identifies as many as five reasons to return to consideration of the bond sector.
First reason. Bonds have become relatively cheap. Bond valuations have improved markedly in recent quarters and are now at levels not seen in a decade. This is true in terms of credit spreads, which have become much higher, but it is even more true for corporate bond yields, which have benefited from the combined effects of interest rate interventions and spread adjustments.
Second reason. Bonds could once again generate attractive income. Currently, continues the expert, however, we find ourselves in a profoundly different context; bond yields have risen and the sub-fund is able to generate potentially attractive income. This is true not only for less risky developed market government bonds, but also for riskier sub-sectors of global fixed income such as high yield or emerging market debt, which currently offer yields of around 10% per year. in order to compensate for the higher credit and default risks.
Third reason. Bonds have once again become an attractive alternative to equities and have once again become an attractive alternative to equities in the context of a multi-asset portfolio.
Fourth reason. Bonds can represent an interesting risk reduction solution. Some investors may feel the need to de-risk their portfolios in light of growing macroeconomic uncertainties and elevated market risks. Bonds can help these investors manage the volatility of their overall portfolio while empowering them
to generate potentially higher income – a component of overall performance that has historically been more stable in relative terms.
Fifth reason. Bonds are an important component of the cash management toolkit. “We believe cash management is an essential part of any investment process, especially during volatile times. An adequate allocation to liquid instruments is also a key pillar of effective liquidity management. In the past, alongside equities and unlike alternative investments or private assets, government bonds and highly rated corporate cash bonds have provided the market liquidity needed in extraordinary circumstances. Recent market events have highlighted the importance of liquidity, and highly rated bonds can be a useful component of a liquid asset allocation.’ c