While Russia's invasion of Ukraine has brought added uncertainty to an already volatile period in markets, the determination of central banks to tackle rising inflation risk is unlikely to change. After a long period of very low yields, interest rates are expected to surge. This is presenting bond investors with an age‑old problem: How can you add yield to a portfolio in a way that does not bring too much exposure to rate risk?
Over the next few months, we will be exploring the search for yield from several angles. In this article, we will focus on how fixed income investors can potentially boost yield by abandoning home bias and diversifying across countries. For most portfolio managers, bonds issued by their home country's government are seen as key low‑risk building blocks for multi‑asset portfolios. Such bonds are easily understood by end investors, provide an anchor for riskier assets within a portfolio, and avoid currency risk. However, we believe that investing more globally in fixed income markets comes with significant benefits—not least because it increases diversification.
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