Bond Investors Should Proceed with Caution

Portfolios will need a careful balance of duration and credit risk to achieve decent risk adjusted returns going forward, says Fidelity's Ian Spreadbury

Fidelity International 8 July, 2014 | 3:02PM
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This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Ian Spreadbury of Fidelity Strategic Bond Fund, argues that now is a good time for bond investors to reassess the balance of risk in their portfolios.

It is a good time for bond investors to reassess the balance of risk in their portfolios. Across capital markets an excess of savings confront a world of slow growth, low inflation and easy monetary policy. Bond yields are falling as liquidity drives valuations higher. Investors' search for yield has focused on extending credit risk, while reducing interest rate risk. But this trend may have run its course; there is a danger of overreaching for returns at the wrong point in the credit cycle. I expect portfolios will need a careful balance of duration and credit risk to achieve decent risk adjusted returns going forward.

It will be difficult to raise rates without damaging the economy

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Fidelity International

Fidelity International  

is a global leader in asset management, providing investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific.