How to build a diversified bond portfolio

  • Describe the challenges of the bond markets
  • Identify the dynamics of the gilt sector
  • Explain some of the fundamentals of high yield bonds
Building a diversified bonds portfolio

Bonds are receiving a lot of attention right now as the consequences of last week's Budget filter through to the markets and investors - both professional and retail.

But historically bonds have been a good diversifier in one's portfolios, an alternative asset class for when equities are falling. However, central bank and government policy have altered that dynamic, following the financial crisis, when the Bank of England stepped in and bought gilts, creating extra liquidity.

This had the consequence of making bonds move in the same direction as equities, taking away one of their chief roles as a diversifier. But looking more closely, how should investors view bonds? One option is to look at high yield bonds, always considered to be riskier, but at present they provide more diversification.

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As stock markets try to make sense of the recent Budget, bonds can be one place where some of these dynamics play out


Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Quantitative tightening is when governments restrict their bond-buying programme, true or false?

  2. Colin Graham believes the inverse relationship between bonds and equities will most likely return once quantitative easing is stopped, true or false?

  3. According to Chris Higham, what would influence the price of government bonds?

  4. According to Ed Craven, how should investors approach bonds if looking to protect against inflation?

  5. According to Brian Nold what is the current default rate of high yield bonds?

  6. According to Stuart Chilvers, what kind of returns can one expect from high yield bonds?

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  • Describe the challenges of the bond markets
  • Identify the dynamics of the gilt sector
  • Explain some of the fundamentals of high yield bonds

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