Is a more hawkish Fed good for income investors?
Rising interest rates can lead to rising government bond yields, which in turn means falling bond prices.
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INCOME investing has just been getting harder and harder. The long-term downtrend in interest rates and bond yields means investors must be more creative and accept a higher level of risk to achieve income (or yield) close to 4 per cent. We believe the Fed's slightly more hawkish tone will make life a little easier, but not by much.
Go back to the late 1990s, when the Singapore government first started issuing bonds. It was relatively easy for income investors - the 10-year bond yield was hovering over 4 per cent and therefore this could play a significant anchor role in any allocation, with other allocations - such as Reits - being used to "juice up" the yield to over 5 per cent.
Fast-forward to today and the 10-year government bond yield has collapsed to 1-2 per cent. The picture is no different in the US or Europe.
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