Which Government Bonds are Rewarding Income Investors?

Negative yielding bonds now account for one quarter of the government bond index, and more than 70% of global government bonds yield below 1%

Mark Preskett 1 November, 2016 | 3:09PM
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Mark Preskett: Global fixed income markets are not happy hunting grounds for investors right now. Asset purchase programmes and interest rate cuts by central banks have helped push the yield to maturity of the Citi World Government Bond index down to a paltry 0.65%.

Negative yielding bonds now account for one quarter of the index, divided roughly equally between Europe and Japan. And more than 70% of global government bonds yield below 1%.

Corporate bond markets are also offering rather unappealing yield to maturities. In Europe, the yield to maturity is below 1%, and in the UK it is below 2.3%.

There are pockets of value, however, albeit at the riskier end of the credit spectrum. We see emerging market local currency debt, that is emerging market debt denominated in the currency of issue, as offering the best value within fixed income right now. The current yield to maturity of 6.2% is only slightly below our fair value yield of 6.8%.

Other areas of interest are the US high yield and emerging market hard currency debt markets.

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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Mark Preskett  is a Senior Investment Consultant & Portfolio Manager for Morningstar UK                       

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