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Today's high interest rate environment has pushed bond prices down and yields higher. This could mean that there is now an opportunity for investors to lock in those higher yields before interest rate cuts occurred in the second half of 2024 and/ after, creating a case for capital appreciation and higher levels of interest income.
We believe there is a good case to be made that cash is better put to work by investing in bonds.
Importance of bond investment
Bonds have often been seen by investors as a less interesting or rewarding option than investing in shares. They seem more complex to understand and have historically been considered a 'safer' option, mainly reserved for those in need of a regular income or added protection for their investments. However, they can also provide important diversification benefits for portfolios, as the return streams from bonds is different to equities and when equities are falling in value, bonds could inversely rise.
Please watch our short educational videos, which introduce the basics of bonds as an asset class including the relationship between prices and yields.
Introduction to bonds
Bonds can provide a regular income and help balance portfolio risk. Typically they are less volatile than some other asset classes and can be used to increase portfolio diversification.
Basics of bond prices, yields and duration
Bonds have two main sources of returns, income from interest paid and capital appreciation. A bond’s yield is based on it’s expected return to an investor, so when bond prices go up it’s yield will fall.
Our investment conversations publication is designed to help support your client conversations and provides information that can help you answer typical client questions - including why now for bonds?
Risk Warning
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Cash deposited into a savings account typically offers security of capital.
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