The place of bonds in a low yield world

10 Oct 2017

The benefit of bonds in traditional and modern portfolio management has often been due to their defensive and diversifying attributes when grouped with a collection of riskier assets such as equities.

In a ‘normal’ interest rate environment, bond prices typically have a low or negative correlation with riskier asset prices. However, with yields around the world now sitting near all-time lows, the ability of bonds to fall further during periods of volatility may be limited. Hence, the diversification potential of bonds could be restricted. Moreover, with the path of interest rates reaching a trough, investors are even questioning if bonds can offer positive returns or returns in excess of cash as rates begin to rise.

Our latest research identifies the added importance of bonds as the world adapts to lower yields. We explain how bonds remain relevant in a world still recovering from the GFC and how bonds perform in comparison to when in a ‘normal’ environment.

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