The sustainable investor for a changing world

Bonds are back

With interest rates having risen sharply from their historic lows, selected fixed income segments look attractive again.

Higher interest rates (and yields)

Bond yields have returned to more normal levels now that central banks are hiking interest rates to curtail high and sticky inflation. And while recent events such as banking turmoil in the US and Europe could slow the pace of their rate-rising efforts, we think they are unlikely to stop anytime soon.

On the contrary, we believe the US Federal Reserve is likely to tighten policy further at its May meeting, and not cut rates before late 2023 at the earliest. In Europe, where core inflation pressures have shown little sign of slowing, investors are pricing in a more hawkish path by the European Central Bank.

Investment opportunities

At prevailing yield levels, bonds could offer an attractive balance between income and more traditional benefits such as capital preservation. Market dislocations are also creating opportunities in certain segments.


Money markets and short duration

Yields on money market and short duration funds are now positive, and we believe they represent a compelling investment opportunity given current market volatility. We favour high-quality and highly liquid assets.


Inflation-linked bonds

We think inflation-linked bonds are likely to outperform nominal government bonds if inflation continues to exceed expectations. There is, however, short-term risk through exposure to real rates.


Developed credit markets

Developed market corporate bonds could offer attractive risk-adjusted returns versus government bonds. We expect only a small increase in defaults in the high-yield segment in 2023.

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