What level of income can you expect?
One way of expressing the level of income payments investors are likely to get from a bond fund is to look at the current yield, which gives the current income as a percentage of the price you pay for the investment. The average current yields on bond funds by type (according to the Investment Management Association's categorisation) are given below:
| IMA bond sector | Yield |
| Sterling High Yield | 5.79 |
| Sterling Strategic Bond | 3.89 |
| Sterling Corporate Bond | 3.56 |
| Global Bonds | 2.19 |
The current yield for individual funds ranges from 3% (on the lower risk investment grade bond funds) to 5% (on high yield bonds). But while yields may appear attractive investors must remember that higher yields mean higher investment risk without exception. At the foot of this article I've produced a warts and all analysis of the current yields of all the bonds funds open to DIY investors. To put these figures into context the average UK Equity Income funds yields 4.05%.
Why global bonds yields are so low?
To emphasise how risk influences current yield just look at the highest yielding global bond funds, they hold European bonds from Governments and corporates. The the lower yielding funds have a skew towards the US where yields on debt issued by the Government have fallen. That's why the average global bond fund only offers a yield of around 2.19% as bond fund managers are worried about the downside risks associated with investing in bonds and are opting for safer bets, principally in the US where investor money flows to times of crisis.
In terms of UK bonds, the risk scale goes from the safer Sterling Corporate Bond funds, through the Strategic Bond funds ending up at the High Yield funds.
Bonds are an unreliable income source
Current yield is only part of the story. What is far more important is the consistency of the payments investors actually receive. There's no good buying a fund with a decent yield if it has a habit of cutting payments. Most bond funds do not tend to prioritise income and bonds certainly don’t provide a source of growing income, with income fixed. That means over time inflation will eat away at the real value of any income produced. If you are seeking a reliable and growing income stream then you need to invest in Equity Income funds.
Bond fund dangers
While bond funds have performed strongly in 2014 this has come off the back of a terrible 2013 for bond investors. Those tempted to invest in bond funds should be mindful that we are approaching the end of a 30 year bull market for bonds. That means that there is a real chance of loss of capital when the market inevitably turns. Bonds can be used to diversify your source of income but equity income remains the best choice for those trying to fund a long retirement.
Bond funds to buy for income
Those tempted by bond funds as a source of income, in particular high yielding funds, should look for defensively positioned funds. Kames High Yield Bond fund is more defensively positioned that its peers yet still provides a respectable 4.22% yield.
Those investors happy to leave the strategic allocation of bonds (i.e. gilts vs high yield vs investment grade corporate bonds) to a bond manager should look at a fund such as Artemis Strategic Bond - a soberly run strategic bond fund which has demonstrated an ability to preserve capital. The manager (James Foster) made some astute allocation calls in 2013 around the decision of the US to taper its money printing programme, helping the fund to be one of the top performers within its sector over the last year. The fund has a current yield of 4.2%.
And those investors tempted by dabbling with individual retail bond issues should remember that these are not covered by the FSCS (Financial Services Compensation Scheme) - so steer clear.
Bond fund current yields
| Fund Name | Unit trust sector | Yield |
| Old Mutual - Bond 3 | Global Bonds | 8.18 |
| SJP - International Corporate Bond | Global Bonds | 6.72 |
| Legg Mason - Global Multi Strategy Bond | Global Bonds | 5 |
| M&G - European High Yield Bond | Global Bonds | 4.82 |
| Threadneedle - European High Yield Bond | Global Bonds | 4.8 |
| BlackRock Invest Mgrs UK Ltd - Charinco Common Invest | Global Bonds | 4.15 |
| Close - Select Fixed Income | Global Bonds | 3.98 |
| Old Mutual - Global Strategic Bond | Global Bonds | 3.81 |
| Templeton - Global Total Return Bond | Global Bonds | 3.7 |
| Marlborough - Global Bond | Global Bonds | 3.59 |
| Natwest - Global Investment Grade Bond | Global Bonds | 3.21 |
| SWIP - European Corporate Bond | Global Bonds | 2.9 |
| EFA - New Horizon Enhanced Income | Global Bonds | 2.83 |
| FP - CAF Fixed Interest | Global Bonds | 2.8 |
| CF Canlife - Global Bond | Global Bonds | 2.57 |
| BlackRock - Overseas Corporate Bond Tracker | Global Bonds | 2.34 |
| FP - FP Octopus Fixed Income | Global Bonds | 2.28 |
| GLG - Global Corporate Bond | Global Bonds | 2.21 |
| M&G - European Corporate Bond | Global Bonds | 2.06 |
| Threadneedle - Dollar Bond | Global Bonds | 1.9 |
| Threadneedle - Global Bond | Global Bonds | 1.9 |
| Threadneedle - European Bond | Global Bonds | 1.8 |
| PFS - PanDEFENSIVE | Global Bonds | 1.7 |
| Investec - Global Bond | Global Bonds | 1.7 |
| EFA - New Horizon High Income | Global Bonds | 1.57 |
| F&C - Global Bond | Global Bonds | 1.34 |
| BlackRock - Global Bond | Global Bonds | 1.32 |
| Scot Wid - Cautious Portfolio | Global Bonds | 1.3 |
| L&G - Global Inflation Linked Bond Index | Global Bonds | 1.2 |
| Invesco Perpetual - Global Bond | Global Bonds | 1.19 |
| Baring - Global Bond | Global Bonds | 1.1 |
| BlackRock - Overseas Government Bond Tracker | Global Bonds | 1.06 |
| Threadneedle - European Corporate Bond | Global Bonds | 1 |
| Newton - International Bond | Global Bonds | 0.92 |
| M&G - Global Government Bond | Global Bonds | 0.9 |
| Henderson Inst - Overseas Bond | Global Bonds | 0.8 |
| JPM - Global Ex UK Bond | Global Bonds | 0.78 |
| Baillie Gifford - Global Bond | Global Bonds | 0.7 |
| M&G - European Inflation Link Corp Bond | Global Bonds | 0.62 |
| TM - UBS Global Fixed Income | Global Bonds | 0.6 |
| M&G - Global Macro Bond | Global Bonds | 0.43 |
| SWIP - Global Bond Plus | Global Bonds | 0.4 |
| Standard Life Investments - Global Index Linked Bond | Global Bonds | 0.31 |
| Scot Wid - International Bond | Global Bonds | 0.1 |
| City Financial - Defensive Global Bond | Global Bonds | 0.02 |
| JPM - Income | Sterling Strategic Bond | 6.79 |
| L&G - Dynamic Bond | Sterling Strategic Bond | 6 |
| Henderson - Fixed Interest Monthly Income | Sterling Strategic Bond | 6 |
| Henderson - Preference & Bond | Sterling Strategic Bond | 5.7 |
| Artemis - High Income | Sterling Strategic Bond | 5.6 |
| SJP - Corporate Bond | Sterling Strategic Bond | 5.59 |
| Old Mutual - Bond 1 | Sterling Strategic Bond | 5.56 |
| Old Mutual - Monthly Income Bond | Sterling Strategic Bond | 5.5 |
| Henderson - Strategic Bond | Sterling Strategic Bond | 5.4 |
| Legg Mason - Income Optimiser | Sterling Strategic Bond | 5.4 |
| Schroder - Strategic Bond | Sterling Strategic Bond | 5.13 |
| Franklin - Strategic Bond | Sterling Strategic Bond | 4.94 |
| PFS - TwentyFour Dynamic Bond | Sterling Strategic Bond | 4.93 |
| Ecclesiastical - Amity Sterling Bond | Sterling Strategic Bond | 4.87 |
| Schroder - Strategic Credit | Sterling Strategic Bond | 4.81 |
| Threadneedle - Strategic Bond | Sterling Strategic Bond | 4.8 |
| Invesco Perpetual - Monthly Income Plus | Sterling Strategic Bond | 4.79 |
| Marks & Spencer - High Income | Sterling Strategic Bond | 4.6 |
| AXA - Framlington Managed Income | Sterling Strategic Bond | 4.52 |
| Jupiter - Strategic Bond | Sterling Strategic Bond | 4.4 |
| Barclays - Sterling Bond | Sterling Strategic Bond | 4.27 |
| Investec - Strategic Bond | Sterling Strategic Bond | 4.24 |
| Artemis - Strategic Bond | Sterling Strategic Bond | 4.2 |
| Aberdeen - World Strategic Bond | Sterling Strategic Bond | 4.2 |
| F&C - Strategic Bond | Sterling Strategic Bond | 4.1 |
| SWIP - Strategic Bond | Sterling Strategic Bond | 4.1 |
| City Financial - Diversified Fixed Interest | Sterling Strategic Bond | 4.09 |
| F&C - Extra Income Bond | Sterling Strategic Bond | 4 |
| Scot Wid - Strategic Income | Sterling Strategic Bond | 4 |
| Aviva Inv - Higher Income Plus | Sterling Strategic Bond | 3.97 |
| Fidelity - Extra Income | Sterling Strategic Bond | 3.94 |
| Aviva Inv - Managed High Income | Sterling Strategic Bond | 3.84 |
| Baillie Gifford - Corporate Bond | Sterling Strategic Bond | 3.8 |
| Aviva Inv - Strategic Bond | Sterling Strategic Bond | 3.75 |
| Royal Bank of Scot - High Yield | Sterling Strategic Bond | 3.67 |
| NFU Mutual - Gilt & Corporate Bond | Sterling Strategic Bond | 3.65 |
| CIS - Sustainable Managed Income | Sterling Strategic Bond | 3.63 |
| GLG - Strategic Bond | Sterling Strategic Bond | 3.58 |
| JPM - Strategic Bond | Sterling Strategic Bond | 3.45 |
| Premier - Strategic High Income Bond | Sterling Strategic Bond | 3.35 |
| Allianz - Sterling Total Return | Sterling Strategic Bond | 3.34 |
| Kames - Strategic Bond | Sterling Strategic Bond | 3.26 |
| Sarasin - Sterling Bond | Sterling Strategic Bond | 3.25 |
| Fidelity - Strategic Bond | Sterling Strategic Bond | 3.23 |
| Rathbone - Strategic Bond | Sterling Strategic Bond | 2.9 |
| Insight - Strategic Bond | Sterling Strategic Bond | 2.81 |
| M&G - Optimal Income | Sterling Strategic Bond | 2.75 |
| Old Mutual - Voyager Strategic Bond | Sterling Strategic Bond | 2.75 |
| CF - IM Bond | Sterling Strategic Bond | 2.68 |
| Standard Life Investments - Strategic Bond | Sterling Strategic Bond | 2.67 |
| Architas MM - Strategic Bond | Sterling Strategic Bond | 2.29 |
| Schroder - Charity Fixed Interest | Sterling Strategic Bond | 2.2 |
| Insight - Inflation Linked Corporate Bond | Sterling Strategic Bond | 2.1 |
| HL - Multi Manager Strategic Bond | Sterling Strategic Bond | 2.03 |
| Virgin - Income | Sterling Strategic Bond | 2 |
| AXA - Sterling Strategic Bond | Sterling Strategic Bond | 1.6 |
| Invesco Perpetual - Tactical Bond | Sterling Strategic Bond | 0.69 |
| M&G - UK Inflation Linked Corporate Bond | Sterling Strategic Bond | 0.15 |
| Walker Crips Stockbrokers Limited - TB Walker Crips Income from Short Term Lending | Sterling Corporate Bond | 8.4 |
| Alliance Trust - Monthly Income Bond | Sterling Corporate Bond | 5.6 |
| IWI - Fixed Income Portfolio | Sterling Corporate Bond | 5.1 |
| M&G - Charibond | Sterling Corporate Bond | 5.1 |
| Old Mutual - Bond 2 | Sterling Corporate Bond | 4.91 |
| Schroder - All Maturities Corporate Bond | Sterling Corporate Bond | 4.75 |
| Rathbone - Ethical Bond | Sterling Corporate Bond | 4.7 |
| Schroder - UK Corporate Bond | Sterling Corporate Bond | 4.58 |
| Cler Med - Income | Sterling Corporate Bond | 4.53 |
| Thesis - Optima Bond | Sterling Corporate Bond | 4.5 |
| Aberdeen - Sterling Corporate Bond | Sterling Corporate Bond | 4.5 |
| UBS - Corporate Bond UK Plus | Sterling Corporate Bond | 4.5 |
| Marlborough - Bond Income | Sterling Corporate Bond | 4.49 |
| L&G - Managed Monthly Income | Sterling Corporate Bond | 4.3 |
| L&G - Sterling Income | Sterling Corporate Bond | 4.1 |
| SWIP - Corporate Bond Plus | Sterling Corporate Bond | 4 |
| Royal London - Corporate Bond | Sterling Corporate Bond | 3.98 |
| Royal London - Ethical Bond | Sterling Corporate Bond | 3.93 |
| FP - Brown Shipley Sterling Bond | Sterling Corporate Bond | 3.9 |
| JPM - The Bond For Charities | Sterling Corporate Bond | 3.84 |
| Allianz - UK Corporate Bond | Sterling Corporate Bond | 3.81 |
| BlackRock - Corporate Bond | Sterling Corporate Bond | 3.73 |
| Insight - Corporate Bond | Sterling Corporate Bond | 3.72 |
| F&C - Corporate Bond | Sterling Corporate Bond | 3.7 |
| L&G - Fixed Interest | Sterling Corporate Bond | 3.7 |
| CF Canlife - Corporate Bond | Sterling Corporate Bond | 3.7 |
| HSBC - Corporate Bond | Sterling Corporate Bond | 3.7 |
| Threadneedle - UK Corporate Bond | Sterling Corporate Bond | 3.7 |
| Invesco Perpetual - Corporate Bond | Sterling Corporate Bond | 3.69 |
| Aviva Inv - Monthly Income Plus | Sterling Corporate Bond | 3.65 |
| Threadneedle III - UK Corporate Bond | Sterling Corporate Bond | 3.6 |
| CIS - Corporate Bond Income | Sterling Corporate Bond | 3.6 |
| Ignis - Corporate Bond | Sterling Corporate Bond | 3.52 |
| Kames - Ethical Corporate Bond | Sterling Corporate Bond | 3.52 |
| AXA - Sterling Long Corporate Bond | Sterling Corporate Bond | 3.5 |
| Close - Bond Income Portfolio | Sterling Corporate Bond | 3.48 |
| Alliance Trust - Sustainable Future Corporate Bond | Sterling Corporate Bond | 3.48 |
| Smith & Williamson - Fixed Interest | Sterling Corporate Bond | 3.43 |
| Kames - Investment Grade Bond | Sterling Corporate Bond | 3.42 |
| Scot Wid - Corporate Bond | Sterling Corporate Bond | 3.4 |
| UBS - Sterling Corporate Bond Indexed | Sterling Corporate Bond | 3.4 |
| Walker Crips Stockbrokers Limited - TB Walker Crips Corporate Bond | Sterling Corporate Bond | 3.4 |
| BlackRock - Corporate Bond Tracker | Sterling Corporate Bond | 3.37 |
| M&G - Strategic Corporate Bond | Sterling Corporate Bond | 3.37 |
| Fidelity - Moneybuilder Income | Sterling Corporate Bond | 3.35 |
| Royal Bank of Scot - Extra Income | Sterling Corporate Bond | 3.32 |
| F&C - Responsible Sterling Bond | Sterling Corporate Bond | 3.3 |
| Henderson Inst - Long Dated Credit | Sterling Corporate Bond | 3.3 |
| M&G - Corporate Bond | Sterling Corporate Bond | 3.28 |
| Standard Life Investments - Corporate Bond | Sterling Corporate Bond | 3.26 |
| Standard Life Investments - Ethical Corporate Bond | Sterling Corporate Bond | 3.24 |
| BlackRock - Corporate Bond 1 to 10 Year | Sterling Corporate Bond | 3.22 |
| Threadneedle - UK Social Bond | Sterling Corporate Bond | 3.2 |
| Henderson - All Stocks Credit | Sterling Corporate Bond | 3.2 |
| AXA - Sterling Corporate Bond | Sterling Corporate Bond | 3.2 |
| SJP - Investment Grade Corporate Bond | Sterling Corporate Bond | 3.19 |
| Kames - Sterling Corporate Bond | Sterling Corporate Bond | 3.18 |
| Morgan Stanley - Sterling Corporate Bond | Sterling Corporate Bond | 3.16 |
| Old Mutual - Corporate Bond | Sterling Corporate Bond | 3.16 |
| Baillie Gifford - Investment Grade Bond | Sterling Corporate Bond | 3.1 |
| L&G - Sterling Corporate Bond Index | Sterling Corporate Bond | 3.1 |
| Henderson - Sterling Bond | Sterling Corporate Bond | 3.1 |
| L&G - Short Dated Sterling Corporate Bond Index | Sterling Corporate Bond | 3 |
| Premier - Corporate Bond Monthly Income | Sterling Corporate Bond | 3 |
| Aviva Inv - Corporate Bond | Sterling Corporate Bond | 2.97 |
| JPM - Sterling Corporate Bond | Sterling Corporate Bond | 2.92 |
| Jupiter - Corporate Bond | Sterling Corporate Bond | 2.9 |
| Fidelity - MoneyBuilder Income Reduced Duration | Sterling Corporate Bond | 2.85 |
| SVS Church House - Investment Grade Fixed Interest | Sterling Corporate Bond | 2.84 |
| Legg Mason - Global Blue Chip Bond | Sterling Corporate Bond | 2.7 |
| Aberdeen - Charity Select UK Bond | Sterling Corporate Bond | 2.6 |
| M&G - Short Dated Corporate Bond | Sterling Corporate Bond | 2.17 |
| Standard Life Investments - Short Duration Credit | Sterling Corporate Bond | 2.1 |
| M&G - Global Corporate Bond | Sterling Corporate Bond | 2.02 |
| Standard Life Investments - AAA Income | Sterling Corporate Bond | 1.95 |
| SWIP - Sterling Bond Plus | Sterling Corporate Bond | 1.7 |
| AXA - Sterling Credit Short Duration Bond | Sterling Corporate Bond | 1.5 |
| City Financial - Credit Opportunities | Sterling High Yield | 17.31 |
| JPM - Global High Yield Bond | Sterling High Yield | 6.88 |
| L&G - High Income | Sterling High Yield | 6.8 |
| Newton - Global High Yield Bond | Sterling High Yield | 6.51 |
| Aberdeen - High Yield Bond | Sterling High Yield | 6.5 |
| Threadneedle - High Yield Bond | Sterling High Yield | 6.3 |
| Marlborough - High Yield Fixed Interest | Sterling High Yield | 6.05 |
| Schroder - Monthly High Income | Sterling High Yield | 6 |
| Investec - Monthly High Income | Sterling High Yield | 5.92 |
| AXA - Global High Income | Sterling High Yield | 5.9 |
| Scot Wid - High Income Bond | Sterling High Yield | 5.8 |
| SWIP - European High Yield Bond | Sterling High Yield | 5.2 |
| Aviva Inv - High Yield Bond | Sterling High Yield | 5.01 |
| SWIP - High Yield Bond | Sterling High Yield | 5 |
| Fidelity - Global High Yield | Sterling High Yield | 4.86 |
| Standard Life Investments - Higher Income | Sterling High Yield | 4.82 |
| M&G - Global High Yield Bond | Sterling High Yield | 4.79 |
| AXA - Pan European High Yield Bond | Sterling High Yield | 4.66 |
| Invesco Perpetual - High Yield | Sterling High Yield | 4.54 |
| F&C - Maximum Income Bond | Sterling High Yield | 4.5 |
| Ignis - High Income Bond | Sterling High Yield | 4.36 |
| Kames - High Yield Bond | Sterling High Yield | 4.22 |
| Baillie Gifford - High Yield Bond | Sterling High Yield | 4.1 |
| M&G - Global Floating Rate High Yield | Sterling High Yield | 3 |
