Education (advanced)
The Deputy Head of Research discusses strategies for maximizing returns in a fixed income portfolio through active trading, emphasizing the importance of understanding bond components, market conditions, and credit risk to enhance portfolio returns. The article highlights the importance of understanding the constituent parts of each bond, such as risk-free rates and credit spreads, and how they contribute to the bond's value. It also emphasizes the significance of considering factors like the shape of the risk-free curve and credit spreads when making buying and selling decisions. By combining knowledge of bond components, market conditions, and credit risk, investors can enhance their fixed income portfolio returns.
Opinion
For the first time in over a decade, bond yields have exceeded equities' yields, presenting an opportunity for investors seeking income to de-risk their portfolios. Bonds offer a structural advantage with contractual payments, whereas dividends are discretionary and subject to economic conditions. Investing in lower-risk bonds provides the potential for higher income, and while there may be a sacrifice in capital growth in certain economic scenarios, the move remains attractive.