According to AMP Capital’s chief economist, returns from holding bonds is set to be a little more than the long term inflation rate for the next ten years. Dr Shane Oliver has been at AMP Capital for sixteen years and he is the chief economist and head of investment strategy. Now he has a warning for bond investors, especially those investors who hold fixed-rate securities. He thinks returns from bonds are likely to be low over the next decade.
The following diagram shows why he holds this view. It shows returns on a portfolio of bonds over nearly seventy years, through good times and bad. The portfolio is based on the Composite All Maturities Bond index.
The relationship is clear. When ten year bond yields are low, returns over the next ten years on bond portfolios which are similar to the Composite All Maturities Bond index will be low. When ten year bond yields are higher, returns will be higher over the following ten year period.