Bonds are little better and at times a lot worse. In 2015, Switzerland became the first country to sell 10-year bonds at a negative yield – followed by Japan in 2016.
Investors basically paid a fee to lend money to these governments for a decade – and were ‘happy’ to do so!
As Bruce Stout, manager of Murray International Trust PLC, commented recently: “This type of distortion serves only to highlight just how incredibly far the world has shifted from economic orthodoxy when savers expected, and were entitled to, a return on their savings”.
As bond yields have continued to fall, investors have been pushed further and further up the risk scale.
So, what income can be found? Sticking with fixed income for a moment, high yield bonds – which we used to call ‘junk’ – are one option. Oil infrastructure projects and a host of other high yielding products abound, but at what risk to an investors capital?
Then there are the bond ‘proxies’ – not just the famed utilities companies, but some other large caps too, as well as property. Are property values also getting stretched though? And are investors worried about being “gated” again and unable to buy or redeem units?
There are high-yielding equities, but value traps are plentiful. The market as a whole yields significantly more than the government bond market and if bond yields rise, we could see the return of the reverse yield gap.
