Bond Investments that Beat Inflation

Rising inflation means bad news for bonds, but there are still income opportunities in fixed interest - if you know where to look

Cherry Reynard 29 December, 2016 | 1:03PM
Facebook Twitter LinkedIn

The degree may vary, but most economists agree that inflationary pressures are re-emerging. A combination of factors, including a rising oil price, Trump’s reflationary fiscal policies and, in the UK, Brexit, are contributing to higher inflation expectations. Inflation has is an historic foe for bond markets and they have already begun to wobble.

The link between higher inflation and poor bond returns is well-established. As inflation rises, the fixed income paid by bonds has less value and therefore bonds sell off. However, bond markets are not entirely fallow ground for those looking to protect portfolios against inflation.

How to Beat Inflation

The most obvious choice is to select index-linked government bonds over their fixed income alternatives. Peter Lowman, chief investment officer at Investment Quorum says the shift from a low inflation, low interest rate environment to a rising inflation, rising interest rate could prompt a rotational switch from fixed interest securities into global equities and cash, but with some exposure to some index-linked paper.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

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.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Henderson Diversified Income Ord85.63 GBP1.82Rating
M&G Global Fltng Rt Hi Yld GBP A-H Acc117.36 GBP-0.03Rating
NB Global Monthly Income Fund Ltd GBP87.60 GBP-0.23Rating

About Author

Cherry Reynard

Cherry Reynard  is a financial journalist writing for