4 Facts About Fixed Income
3 min readFixed income investing seems straightforward. But here are four reasons why working with financial professionals makes sense.
1. When interest rates go up, bond prices go down
If interest rates go up, investors can access a bond with a higher interest payment – the attractiveness (and value) of the bond with the lower interest rate goes down.
2. Fixed income ≠ fixed
Not all options pay a fixed amount on a fixed schedule.
Mortgage-backed securities: an investment with a monthly payment consisting of a blend of principal consisting of a blend of principal and interest payments from a pool of mortgages
Floating-rate loans: loans made by major banks to prominent companies
3. Your investment is not guaranteed
Although not as volatile as equities, fixed income investments can experience price fluctuations.
Fixed-income diversification is key – what leads the market one year may not the next year.
| 2018 | 2019 | 2020 | 2021 | 2022 |
|---|---|---|---|---|
| Canadian Bonds 1.29% |
Global Conv. Bonds 13.66% |
Global Conv. Bonds 34.50% |
Floating Rate Loans 5.20% |
Floating Rate Loans -0.60% |
| Global DM Bonds 1.12% |
EM Bonds 13.11% |
Global Bonds 9.20% |
Global Conv. Bonds 2.45% |
Canadian Bonds -11.25% |
| Floating Rate Loans 0.44% |
Global HY Bonds 12.56% |
Canadian Bonds 8.42% |
Global HY Bonds 0.99% |
Global DM Bonds -12.66% |
| U.S. Bonds 0.01% |
U.S. Bonds 8.72% |
U.S. Bonds 7.51% |
U.S. Bonds -1.54% |
Global HY Bonds -12.71% |
| Global Conv. Bonds -1.15% |
Floating Rate Loans 8.64% |
Global HY Bonds 7.03% |
EM Bonds -1.65% |
U.S. Bonds -13.01% |
| Global Bonds -1.20% |
Canadian Bonds 6.90% |
EM Bonds 6.52% |
Global DM Bonds -2.41% |
EM Bonds -15.26% |
| EM Bonds -2.46% |
Global Bonds 6.84% |
Global DM Bonds 4.88% |
Canadian Bonds -2.60% |
Global Conv. Bonds -16.21% |
| Global HY Bonds -4.06% |
Global DM Bonds 4.75% |
Floating Rate Loans 3.12% |
Global Bonds -4.71% |
Global Bonds -16.25% |
Source: Morningstar, December 31, 2022 in local currency terms. Past performance is not indicative of future results. One cannot invest directly in an index.
Canadian Bonds represented by Bloomberg Canada Aggregate TR Index
Emerging Markets (EM) Bonds = Bloomberg EM USD Aggregate TR Index
Floating Rate Loans = Morningstar LSTA US Leveraged Loan TR Index USD
Global Bonds = Bloomberg Global Aggregate TR USD Index
Global Convertible Bonds= ICE BofAML Global 300 Convt TR USD Index
Global Developed Market (DM) Bonds = S&P Global Developed Sovereign Bond TR Index
Global High Yield (HY) Bonds = Bloomberg Global High Yield TR USD Index
US Bonds = Bloomberg US Aggregate Bond TR Index
4. Fixed income investments are not all equal
Fixed income investments are also subject to default risk - the risk that an issuer will fail to pay the interest due or repay the principal. This default risk is conveyed through its credit rating - for example, those with a AAA credit rating are considered less risky than those rated B.
To learn how you can diversify your fixed-income portfolio, talk to your financial advisor or read “The Turning Tides of Fixed Income” at AGF.com.
Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
This material is for informational and educational purposes only. It is not a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. It is not intended to address the needs, circumstances, and objectives of any specific investor. This information is not meant as tax or legal advice. Investors should consult a financial advisor and/or tax professional before making investment, financial and/or tax-related decisions.
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