Higher yields may brighten future total returns for bond investors

Higher yields may brighten future total returns for bond investors

In the same way that holding an individual bond to maturity could result in earning its starting yield as its annualized return, holding a diversified portfolio of bonds could result in a similarly high degree of return predictability. In the chart, using data going back to January 2000, we demonstrate a strong relationship between the starting yield of the Bloomberg US Aggregate Index and its 5-year forward annualized total return. Taking advantage of compelling starting yields in 2023 and relying on the reassuring evidence of bond math could offer the potential for attractive longer-term returns, with lower volatility than equities.

A strong relationship between starting yields and forward total returns

Bloomberg US Aggregate Index (January 2000 – February 2023)

Chart 1

Macquarie Asset Management. *As of 2/28/23

What this means for investors

Bond yields have risen to their highest levels since 2008, creating what we view as an attractive entry point for investors. Additionally, we believe that an actively managed approach using traditional “core” investment grade sectors along with higher yielding “plus” sectors may offer the potential for even greater total returns.


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Quantitative easing is a government monetary policy used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increased the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

Quantitative tightening (QT) refers to monetary policies that contract, or reduce, the Federal Reserve System (Fed) balance sheet.

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