Funds for a bond market rebound… or a further crash

15 min Read Published: 02 Jun 2022

One of the key investing trends of 2022 has been the bond market's collapse as inflation fears have risen. When inflation fears increase then the likelihood that central banks raise interest rates also increases. Both make the fixed income typically produced by bonds less attractive to investors, causing their value to fall (and yields to rise) as investors look for inflation-proof returns elsewhere. This is known as interest rate risk.

The current environment has been made even more tricky for investors by the fear of slowing economic growth rising alongside inflation (known as stagflation) which also makes equities less attractive. That's because company profits are often closely linked to the growth of the wider economy.

This is why in 2022 we've seen the unusual scenario of bonds and equities falling in tandem which has caused a headache for investors and ultimately requires a different approach. It is worth reading my research article "The diversification dilemma - when bonds and equities fall together".

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