Page 21 - Investment Outlook

Fixed Interest
Yield Bonds are illustrated below by the gross fund performance over 1 month firstly ending on 27th March and secondly ending on 12th May.
floor, GDP falling and inflation a luxury for the future, interest rates are expected to remain low for several years.
For these reasons we are happy to increase our exposure to investment-grade corporate bonds along the yield curve, as they now look to offer better returns than sovereign debt and are far less exposed to defaults than higher-yielding sub-investment grade credit. With a recession ahead, corporate bonds can offer useful returns. As protection against another downturn, we will overweight longer-dated credit, gilts and US treasuries. We are likely to see periods of volatility ahead so the balance of growth and security is wise.
Royal London Short Duration High Yield Bond Fund Threadneedle High Yield Bond Fund
Vanguard UK Investment Grade Bond Fund Vanguard UK Government Bond Fund
Vanguard US Government Bond Fund
-11.64% -14.15% -8.52% +2.56% +3.53%
+0.86% +2.71% +1.74% +1.38% +0.23%
Clearly, US Treasuries and UK Gilts were able to withstand the market turmoil and supported portfolio values but we may not have seen the swing back in the corporate credit markets without Federal Reserve intervention.
The ever-increasing global debt burden means that the financial system is sensitive to changes in interest rates. Rate cuts are typically used to stimulate a weakening economy and are not usually a welcome development for stock markets in the 12 months after a cut, but bond markets can fare much better. The current levels of sovereign borrowing and QE programmes means that both short-term and long- term interest rates are at their lowest levels of all time. With interest rates already anchored to the
Financial Advice & Wealth Management
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