Should You Invest in Bonds in 2016?

As UK and US central banks raise interest rates this year, so too will bond yields - and the price of bonds will fall. Is there any merit in holding fixed income in 2016? 

Emma Wall 7 January, 2016 | 9:44AM
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This article is part of Morningstar’s Guide to Investing Ideas for 2016, click here to get your financial health in order with some new year’s resolutions for your portfolio.

It has been a very long time since interest rates were dropped to the lowest ever rate of 0.5% in the UK; seven years in March. But hope is on the horizon for savers. In December, seven years after the Federal Reserve dropped rates to its lowest equivalent our compardres across the pond chose to raise interest rates; and the consensus view is Britain will not be far behind.

But while savers rejoice at the prospect of a little more return on cash in the bank, bond investors are not looking quite as perky. This rate rise has been long awaited. In June 2012, one of Britain's leading bond fund managers urged investors to "get ready" to ditch fixed income, saying that they were “riskier than equities”. Bond markets went on to enjoy three more years of attractive returns after that, but now the day is finally upon us where fixed income prices will begin to fall.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Artemis High Income R Inc0.74 GBP-0.31Rating
Fidelity Strategic Bond34.10 GBP-0.35Rating
Schroder MM Diversity A Acc1.21 GBP0.25Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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