Bonds  

Guide to Bonds

  • Describe some of the main features of the bond market right now
  • Explain the dynamics of the gilt sector
  • Identify some of the challenges in the corporate bond market
CPD
Approx.60min
Guide to Bonds

Introduction

The dilemma facing bond investors has grown starker since the start of 2020, as already record low bond yields have plunged further.

The pandemic has caused the market to revise sharply downwards its expectations for economic growth and inflation, creating the conditions which normally cause government bonds to perform strongly.

But with yields at record lows, and in some cases negative, can those assets continue to perform the safe haven role of old?

For advisers constructing a portfolio based on the principles of diversification and risk management, do government bonds continue to deserve a place among the holdings of a typical client? 

How should investors view the implications of central banks' vast bond buying programmes.

Corporate bonds are typically more economically sensitive than government debt, so the prevailing market conditions ought to be negative for those assets.

But if companies are cancelling their dividends, does that leave more cash to pay the bond holder? And how will the low inflation environment help the corporate bond market?

This guide examines the outlook for corporate and government bonds, and the role of bonds in balanced portfolio. 

In this guide

CPD
Approx.60min

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. According to the first feature why do governement bonds rise in value in times of market stress?

  2. According to Mark Preskett, in the first feature, what is the main determinant of returns on a bond in the long term?

  3. According to the second feature, the UK government may issue more gilts than it did during the financial crisis, true or false?

  4. According to the third feature, why do corporate bonds pay a higher yield than government bonds?

  5. According to the third feature, implied defaults in credit markets are very high at present, true or false?

  6. According to Stephen Snowden in the fourth feature, why is income from corporate bonds likely to rise?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe some of the main features of the bond market right now
  • Explain the dynamics of the gilt sector
  • Identify some of the challenges in the corporate bond market

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