Valuation of bonds has become distorted due to seemingly indiscriminately buying.
After a bull market that’s lasted for 35 years, some investors now plan to sell all their bond holdings because they fear that rising interest rates will see bonds record large losses.
‘So, where’s the fizz?’ asked a colleague recently as we discussed conditions in the global high yield bond market.
For much of the past 35 years interest rates have trended lower, taking bond yields with them.
In the March 2017 issue of Money Observer, we set ourselves the challenge of trying to generate a yearly income of £10,000 from a selection of actively managed funds.
Bond trusts have had a great run over the past 35 years as inflation and the yield on 10-year US Treasuries – the benchmark for the bond universe – have fallen from the mid-teens to low single figures.
The decision by the US Federal Reserve in September to reverse its crisis-era stimulus programme and raise interest rates showed its confidence that inflation is set to return.
Monetary policy has supported bond markets for a decade. Low interest rates and low inflation have seen bond investors enjoy many years of gently rising returns.
Fixed income was the best-selling asset class in the month of October with net retail sales of more than £2 billion, according to new data released by the Investment Association.