Investment implications
Assuming they are comfortable with the higher risk inherent in bonds versus cash, investors may want to consider moving out of cash and into longer maturities sooner rather than later. Even though some bonds currently have lower yields than cash, they've benefited materially more than cash in the past five BOE rate-hiking cycles on average. Since the market typically anticipates the next easing cycle, much of the positive return may accrue around the time of the last hike.
Corporate bonds have a better average return profile than government bonds and cash. Because corporate bonds have higher yields and spread-tightening potential, they've tended to outperform other fixed income sectors over a longer period.
An incremental step out of cash into bonds may not be as big a risk as one might expect. Even if the central bank keeps hiking, our analysis indicates that bond returns would be comparable to cash in the short term, and bonds would outperform longer term based on past cycles.
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Pre-election ideas for investors: Lean into what you know (not what you don’t)
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