An insider’s guide to bond opportunities
From: wellsfargofunds.com
If you’ve been thinking that bonds are only a play on interest rates and you’ve been waiting and waiting for a spike in yields to reallocate for the long term, you’ve been waiting for nothing. While waiting for Treasury yields to go up, you’ve missed out on some good income opportunities in credit. Going forward, credit is where we think the opportunity in fixed income is. Why? Because the interest income from credit’s higher coupons can often more than offset price declines associated with rising bond yields. We aren’t talking only about high-yield debt but also about investment-grade credit as a leading candidate for better returns and less interest-rate sensitivity.
We realize that some investors are skeptical about the benefits of fixed income, especially given ultralow rates and the likelihood of higher interest rates. However, the aftermath of the Brexit vote on June 23, 2016, has reminded us that fixed income may serve as an important ballast to counter the volatility of other asset classes. Regardless of the market environment, it is important to strategically allocate to fixed income. Below we show how to do this by first selecting a foundational fixed-income allocation that meets an investor’s goals and risk limits and then fine-tuning this allocation with other types of fixed-income investments to best adjust to a changing market environment.
