Sourcing income from equities and bonds…

With bond yields and interest rates stubbornly low, sourcing income remains a challenge. Here, James Foster and Jacob de Tusch-Lec explain their view

Why are bond yields so low?

James: That yields on government bonds have been so persistently low – despite strong economic growth and the prospect of rising interest rates – is one of the biggest puzzles facing investors today.

Furthermore, there are signs of inflation everywhere. So with yields so low, buying and holding government bonds to maturity seems almost certain to result in a negative real return.

Remember, though, that a large group of investors are buying government bonds not because they want to – but because they must. Banks, insurers and pension schemes are all obliged to buy and hold ‘risk-free’ assets, irrespective of whether the potential returns seem likely to be positive.

The pressure on banks to own more government bonds has only increased since the financial crisis – even as buying by central banks (QE) has driven their yields down to derisory levels. That forced buying might be seen as a source of frustration for anyone looking for a ready source of income: low yields deny savers the opportunity to simply buy government bonds and enjoy their coupons.

Looked at in another way, however, those investors who are not subject to the demands of a regulator might feel relieved that they are at liberty to look around for better sources of income.

So where can investors find sources of income or yield? Read more here

Find out about the Artemis Monthly Distribution Fund here

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