Fixed income looks attractive as cash yields decline

Cash has been king in recent years. But as our Global Fixed Income Views 1Q 2025 reminded us, with global interest rates heading lower and bond yields still elevated, core fixed income markets currently offer investors a viable opportunity to put their cash to work.

While cash yields have enjoyed a period of elevation, they are now on a downward trajectory. This decline signals a pivotal moment for investors who have sought refuge in cash, lured by its safety and liquidity, with the opportunity cost of remaining in cash now becoming increasingly apparent as interest rates fall.

In contrast, bond yields remain elevated, across the entire global fixed income spectrum. Whether we look at investment grade, securitised assets or emerging markets, yields are generally trading above long-term averages.

As a result, bonds offer a potentially lucrative alternative for those willing to extend their investment horizon and diversify their opportunity set. Longer-duration core bond strategies, in particular, not only provide the potential for higher total returns, but also serve as a potential hedge against the volatility and uncertainty that often accompanies equity markets.

Long-term fixed income benefits surpass cash safety net

While we understand client concerns over the current geopolitical environment, we still see the benefits of fixed income outweighing the safe haven qualities of cash.

Analysis from our Market Insights team shows that the 60/40 equity/bond portfolio tends to outperform cash following geopolitical shocks. On average, the following 12-month excess return over USD cash rates for the 60/40 portfolio is nearly 10%, and over 20% in the subsequent three years.

So, while investors’ first inclination may be to hide in cash when markets wobble, history suggests that being fully invested in fixed income and equities ultimately delivers in the long-term.

Global Aggregate strategy positioning

We see the current environment underscoring the importance of strategic asset allocation, with a move from cash to longer-duration bonds allowing investors to enhance potential income generation and manage risk, given the challenging geopolitical backdrop.

Within our actively managed Global Aggregate strategy, we continue to favour a diversified basket of high quality carry sectors, such as investment grade credit and agency mortgage-backed securities (MBS). We are also using yield curve steepeners to help provide portfolio protection should market volatility increase.