Talking Point  

Advisers turn away from bonds as yields collapse

Advisers turn away from bonds as yields collapse

Advisers no longer see bonds as an attractive income investment, according to the latest FTAdviser poll.

With the yield on the two year UK government bonds having reached negative levels this week, and the longer-dated ten year bond presently 0.2 per cent, the income from those assets have dropped below the prevailing rate of inflation. 

Of those advisers who responded to the FTAdviser poll, 56 per cent said bond are not an attractive way to get defensive income into a client’s portfolio right now.

Article continues after advert

Bond yields have been pushed lower over the past decade by the central bank policies of quantitative easing, whereby the banks buy government bonds at any price, in order to force the yields lower, making it cheaper for governments to borrow, and improve the liquidity of markets as a whole.

This bond buying programme drives the prices up, and the yields down, and so the income available for clients is reduced. 

This has prompted many advisers to look elsewhere for defensive income.

But Alex Harvey, co-head of research and portfolio manager at Momentum Global Investment Management said it was still possible to get a decent yield from a bond portfolio.

He said: “Investors seeking an income from their portfolio are well placed today to benefit from the recent market chaos. 

"Credit spreads on higher quality and short maturity corporate bonds skyrocketed in March and two months later still offer good value.

"A blend of investment grade, high yield and emerging market bonds should yield around 5 per cent today and we would favour using an active manager for higher risk corporate exposure. 

"These could be combined with some higher yielding and still discounted fixed income investment trusts and some high-quality dividend paying equity names in more defensive sectors.​”