Is the Outlook for Bonds Bearish?

Bond markets have been propped up by deliberate monetary policy for a decade. Rising returns for bond investors have been fueled by low interest rates combined with low inflation.

In 2017 however, the environment changed. Interest rates in both the UK and US rose, and the quantitative easing programme of the Eurozone nations looked as though it may not continue in the medium term. In addition, inflation began to rise.

These factors should have dented the returns of bonds if orthodoxy were followed, but this did not eventuate.

Returns were not huge however, with the average global bond fund failing to deliver a return above that of inflation, partially due to the weakness of the pound (Cherry Reynard, Money Observer, January 2018).

Average returns from sterling strategic bond & high yield bond funds were more impressive however at 4.4% and 5.1% respectively.

Emerging market debt funds have seen average returns of 4% (Cherry Reynard, Money Observer, January 2018).

It is anticipated however, that this positive trend is unlikely to continue. Eric Holt, manager of the Royal London Sterling Extra Yield Bond fund, says: ‘There is no lack of challenges – from the economy, from politics. We believe markets will be quite thin and skittish. We are already seeing much more intra-day volatility. But volatility is no bad thing, though it may feel like it.’

Holding some debt in your investments is part of a well rounded portfolio.

Westminster Wealth Management can assist in helping you to navigate your financial future, and expert advice is valuable in complicated times just as much as in simple ones. Contact us today.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.