The historically low interest rates of the last decade have kept many investors out of the fixed income markets. However, in recent months we have seen consecutive interest rate hikes meaning that bond yields are becoming more attractive to investors once again.
In many ways a bond is similar to a loan or deposit, a commitment to repay the money borrowed to an investor with regular interest payments throughout the duration of the bond. At maturity the bond issuer reimburses the investor for their principal investment and final interest payment.
Bond terms to know:
Bonds come in many shapes and sizes, ranging from very risky “junk bonds” to High Quality Bonds which have a very low risk of default and receive higher ratings from the credit rating agencies and the flip side is that higher quality bonds have a lower yield than riskier bonds.
Including fixed income products such as bonds in your investment strategy allows you to help diversify your investment portfolio while providing a steady stream of income and reducing some volatility you might experience with other asset classes. Rates of return of bonds are becoming much more competitive as short-term bond yields continue to rise.
Given broader global uncertainties around future economic growth, bonds can be a good diversifier as part of a wider portfolio. It is possible that slower global growth will mean that some of the rate hikes assumed by markets won’t be realised, particularly as it looks like we may be near the peak of inflation, if it has not already peaked. Given the speed of the market move, and the comparatively weak returns elsewhere in the market, we truly believe this has opened several attractive opportunities to invest in bonds. It is for these reasons that bonds are back in town.
What Arlingclose offers you?
At the end of every month, we offer all professional clients a high-quality bond pack as well as publishing a list of covered bonds as part of our UK and Non-UK Counterparty Packs.
Arlingclose also offer due diligence on all bonds, as well as other bespoke services such as investment strategy reports, interest rate forecasting, relative value reports and more.
If you are interested in any of these services, please email firstname.lastname@example.org.