Bonds should still have a place

Although bond returns have been more modest than those for equities over the past year, investors should remember their enduring qualities of stability and their ability to match liabilities

The strong equity markets during 2003 seem to have put bond investment back in its place. Whereas global equity markets produced double-digit returns for the year, bond returns were more modest. Furthermore, within the bond markets, taking on credit risk was necessary to attain attractive returns. To illustrate this trend with sterling bonds, gilts returned 2.1% whereas BBB-rated bonds delivered a much more attractive 10.5%. If taking on credit risk is necessary to generate returns and those returns are likely to be beaten by equity investment anyway, why would investors look to bonds? A ...