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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.
Cash with a roughly 5% yield is a beautiful thing. While it’s easy to get attached to high-yielding cash, holding cash until there’s more certainty in the market environment could cost total return relative to bonds based on the past six interest-rate hiking cycles. As such, investors may want to consider moving out of cash into longer maturities sooner rather than later.
We analyzed the three-year total returns of cash, Treasuries, bonds (as represented by the Bloomberg Aggregate Bond Index), and corporate bonds (as represented by the Bloomberg US Corporate Bond Index) starting from the last hike of each of the past six full US Fed interest-rate tightening cycles since 1980.
The chart above shows that returns for all the bond strategies we observed were around double the returns of cash. Even though some bonds have lower yields than cash, they've benefited materially more than cash in the past six Fed rate-hiking cycles on average. Corporate bonds outperformed Treasuries and the Bloomberg Aggregate Bond Index due to their higher yield and periods of spread compression, which added net positive return.
Credit: Better opportunities to add risk on the horizon
ur experts review current macro dynamics impacting the bond market and discuss where they see opportunities and risks across credit sectors.
Why cash won’t cut it for long: The case for bonds
Global Investment and Multi-Asset Strategist Nanette Abuhoff Jacobson and Investment Strategy Analyst Patrick Wattiau explore the relative potential benefits of bonds versus cash.
Credit market outlook: Expect greater opportunities in back half of 2023
Against a backdrop of elevated recession risks and banking-sector stress, Fixed Income Portfolio Manager Rob Burn identifies relative-value sector opportunities in the credit market.
Will higher rates sap US consumer spending?
Higher interest rates have increased borrowing costs. Could a consumer-led US recession be looming? Fixed Income Portfolio Manager Kyra Fecteau sees three factors that may help mitigate the impact.
Deep and diverse: Welcome to today’s Asia credit market
Two of our Singapore-based experts on Asia credit discuss the market's key features, along with how it's evolved and is likely to continue doing so.
Sector rotation opportunities for nimble credit investors
Following a credit market rally, Fixed Income Portfolio Manager Rob Burn still sees value in higher-yielding sectors but believes investors should stay nimble.
Past results are not necessarily indicative of future results and an investment can lose value. Funds returns are shown net of fees. Source: Wellington Management
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