Bond markets: carry makes a return

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In recent years, low and even negative interest rates had curbed the appeal of investing in bonds and potentially holding them to maturity to capture returns from bond carry.

However, rising interest rates in recent months have changed matters considerably. French 5-year and 10-year OAT yields have risen back above 2% per annum. The average yield on 5–7-year euro investment grade corporate bonds now exceeds 4% (BofA 5–7-Year Euro Corporate Index), compared to just 0.7% at the start of the year.


Corporate bond yields are now significantly higher (at 4.1% for investment grade and 8.1% for high yield) than the average levels seen over the past two decades, enabling investors to see bond markets as an attractive long-term investment given the improved risk–return profile. In fact, carry is now set to become the main contributor to bond performance.


The opinion expressed above is dated October 7th, 2022 and is subject to change.

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