Investing in fixed income during a hiking cycle

Also Interesting

• Asset allocation: risks evenly balanced
• To spend or not to spend?
• Review of markets over the third quarter of 2019

It’s a common preconception that rising interest rates are bad for bonds. While rate hikes are undoubtedly a headwind for fixed income assets, investors tend to overestimate the impact of rising rates and can overlook the benefits of holding bonds as part of a resilient and balanced portfolio.

Key takeaways

Rising rates are much more benign for bonds than is commonly perceived.

• While longer dated bonds are more sensitive to interest rate changes than short term bonds, given their longer duration, the upward movement in yields is much more muted towards the longer end of the curve.
• Carry and time are bond investors’ friends, giving bonds the necessary income to help offset capital losses and deliver positive returns.
• Investors should consider looking beyond the hiking cycle. An allocation to bonds could represent the anchor of a durable and resilient portfolio, as it can potentially provide stability, even after a hiking cycle.