Or as Lisa Abramowica and Rani Molla put it in their April 5 Bloomberg Gadfly piece, “Dude, Where’s My Yield?”
The picture tells the story – 10 year government bond yields are lower than 2% in many developed countries that have half-decent sovereign credit ratings. Japan and Switzerland’s 10-year bonds have negative yield! To search for higher yield you need to venture into countries with more volatile currencies like South Africa or Turkey. Some search for yield by looking to the corporate sector but even their yields are low unless you venture into junk territory. While it might be desirable to hunt for higher returns in the fixed income segment of your portfolio, don’t forget what it’s there for – safety and low correlation with the equity portion of your portfolio – creeping down the quality spectrum in bonds often means you end up not only with less safety but higher correlation with equities.