Tides have turned for fixed income: Merits of investing in shorter-dated bonds

OVER the past couple of years, rising interest rates, slowing global growth and increasing market volatility spurred a scramble for safety among investors, who withdrew their capital from risky investments and parked their cash in fixed deposits.

After all, when risk-free fixed deposits yielded higher than 5 per cent during one of the most aggressive tightening cycles in over four decades, the risk-reward for taking on duration or credit risk seemed less appealing.

However, times have changed, and we are in a different environment in 2024. Almost two years since the US Federal Reserve’s first interest rate hike, we are now approaching the pivoting point, and the market expects the first rate cut to occur later this year.