Bonds 101 A simple investor guide to navigating todays high yields

Key arguments

• Higher starting yields mean income can do more of the work, so investors no longer need a large fall in rates for bonds to be useful.
• Bonds now serve portfolio roles: separating short-term goals from equity risk, matching future liabilities, and funding retirement spending.
• Long-duration bonds are an active bet on falling yields, not just a higher-income version of short-term bonds.
• With government yields already attractive, investors have less reason to reach into lower-quality credit for income.

Corresponding source evidence

1. Inflation, oil prices, government borrowing and further Federal Reserve tightening could keep yields elevated or push them higher still.
2. The US 10-year Treasury yield has moved above 5%, after another sell-off in global bond markets.
3. The Federal Reserve has also just raised interest rates for the first time in more than three years, taking the policy rate to 3.75–4.00%, while signalling that inflation remains a concern and further tightening may be required.