Bonds are important for a diversified portfolio. They’re generally considered a defensive investment, the stable, safe component when compared with the more volatile equities and other growth investments. However, it’s important to be aware of changes in the investment environment, some of which herald the prospect of more challenging times for fixed income investments. Despite the ‘defensive’ nature of fixed income securities, they too can experience volatility.

Since the GFC, yields in both government and corporate bonds have fallen globally. Because of the inverse relationship between yield and price, this has meant the price of bonds has risen. Now, however, yields are starting to rise – and, because of this inverse relationship, prices of fixed income securities are falling.

While this may herald a more challenging time for bond investors, there are good reasons to retain an exposure to fixed income investments in a diversified portfolio.

To read the article and complete the CPD quiz (0.5 points), click here.