Don't forget corporate bonds
That’s according to Christian Hawkesby, director of fixed income at Harbour Asset Management.
He said investors often shortened the duration of their assets in times when interest rate rises looked likely, or had a higher allocation to inflation-linked bonds, if the rates rises were likely to be tied to inflation increases.
But inflation expectations are still subdued despite expectations that central banks are on the verge of increasing interest rates.
He said corporate bonds could be another option because they provided a buffer to protect investors from capital losses. “Corporate bonds also tend to perform better than government bonds in an economic recovery, as the chance of corporate bonds defaulting reduces as the economy improves.”
Hawkesby said that over the long term, investors were usually rewarded for holding a well-diversified allocation to corporate bonds and the additional running yield would compensate them for the risks involved.
He said good quality fixed interest products were good protection for investors. “While the running yield is currently low… they continue to be the asset class that is likely to perform best when the world hits troubled times.”
