Bonds have become a more interesting investment over the past year as prices fell, but the bulk of the returns this year are likely to come from income rather than capital gains, according to the guests on the latest FTAdviser podcast.
Nathan Sweeney, deputy chief investment officer for multi-asset at Marlborough, said: “It is never wise as an investor to fight the Federal Reserve, and they have a point to prove as they initially thought inflation was transitory when it clearly has not been.
"So I think they will keep raising rates and that’s very likely to mean that, except for at the very short end of the curve, the bulk of the returns from bonds will likely come from income.”
Tom Beckett, from the CIO’s office at Canaccord Genuity Wealth Management, said: “We are starting to see the impact of higher interest rates really start to bite. And as we move closer to that possible recessionary scenario, people will start to own longer dated bonds where the return will likely be from income, though bonds are not all the same, and there will be some capital returns from some bonds as well.”
Torcail Stewart, who runs the Strategic Bond fund at Baillie Gifford, has already begun buying longer dated bonds in preparation for an economic downturn.
He says shorter dated bonds protect against inflation, while longer dated bonds protect against recession.
You can hear the full podcast by clicking on the link above.