The risk-dampening powers of global bonds

Viable alternatives to hedged bonds

Currency-hedged global bonds sold off in 2022 as spiking global inflation and the aggressive monetary policy tightening response by central banks weighed on broad investment-grade fixed income and equity markets alike.

The magnitude of the drawdowns in fixed income last year might have appeared alarming. Maximum drawdowns in hedged global bonds in 2022 rivalled those seen in other asset classes which are traditionally considered riskier and more volatile than bonds. But drawdowns in global fixed income markets should not distract investors from the crucial role that bonds can play as a volatility dampener in their portfolios. The unravelling of duration risk As major central banks instigated exceptional monetary stimulus measures in the wake of the global financial crisis, this helped to drive ...