- With bonds finally offering a good level of income, investors have piled in
- What does the yield reset mean for an income investor?
'Normal' is a subjective term, and one that's rarely been used when discussing markets over the past 15 years. But it's a word that more experienced investors are increasingly reaching for when it comes to one particular investment. Interest rates rising to levels more in line with historic trends has plenty of consequences for investors, from currency fluctuations to the differing effect rates have on different equity market sectors. But the most obvious impact is on a once sleepy asset class.
Bonds, which in the era of low rates and quantitative easing looked expensive and offered very little in the way of yield, have seen a huge reversal in the face of inflation and rising rates. The yields on government bonds, which move inversely to their prices, have spiked in the last year. A 10-year UK gilt now comes with a 4.4 per cent yield – not bad compensation to hold an asset that, despite recent volatility, still tends to be viewed as a risk-free investment. Higher rates mean that even cash can now offer a return, with money market funds and bank saving accounts offering attractive rates.