An inverted relationship between bonds and rates means traditionally fixed income is considered a casualty of a higher interest rate environment. But after years of insipid yields, today that relationship may result in a more attractive income prospect for bonds, according to BNY Mellon IM’s chief economist Shamik Dhar.
In a paper he co-authored, Tidal Forces: Dissecting the interest rate equation, Dhar argues that for many reasons interest rates are likely to stay higher for longer. In pushing up bond yields to levels not on offer for some time, the income buffer is likely to be compensatory for the fall in bond prices that typically occurs amid high rates, he notes.
Managers at Insight Investment agree, noting the sharp rise in yields already seen in the first half of 2023 has resulted in attractive income. Insight highlights the Bloomberg US Agg Index as an example, which at