Hooray! Bonds are back

Like 007 film repeats, Bonds never quite go away.

Balanced with Equities, Bonds make up a key part of your portfolio. Many of our clients are on a portfolio called Trivium 50, which – as you’d expect – is half and half.

To decide what percentage of Bonds to include for each client, we often look at graphs such as this one from our friends at Timeline using data sourced from Morningstar:

portfolio performance

From this, you can see that the red line (100% Global Bonds) has performed less well this past year than the green line (100% Global Equities).

It shows that Bonds were on a slow slide until October when there was a good-looking two-month recovery, which has since withered a bit.

Inflationary pressure

In the past, Bonds have been rather more reliable than that. So why did they underperform?

It’s because Bonds don’t like inflation, and inflation has recently come to the fore.

This is in line with Trivium’s thinking (our Investment Committee). They blame the drop in Bond values on the fact that central banks hiked interest rates in an attempt to curb inflation.

The low was in October 2023 when UK government bonds really slumped. But not for long. In November, inflationary fears began to recede, and whispers of impending rate cuts grew louder, so investors quickly pivoted back.

This shift sparked a significant rally, culminating in a solid year-end performance for Bonds.

Good news ahead

At the start of 2024, our friends at Vanguard said that Bonds had reset. For more on this, please see their article: Improved bond outlook in a period of positive real rates.

You might also like to revisit our 2019 article Stick with it.

Volatility is not behind us, but we’re hoping that inflation is now getting back under control, interest rates will start to drop, and we’ll end up with higher yields for us all.

Hoorah!

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100