Central banks around the world cut interest rates to record low levels in response to the coronavirus crisis. How does this change the path forward for investing?
Traditional bonds, like U.S. Treasuries, have long been used by investors globally for two main reasons: First, to provide steady income and return, and second, to act as diversifier against stocks and other risky assets. But with very low interest rates today, it is difficult to achieve these objectives.
Investors will need to rethink how they diversify their portfolios, as traditional bonds may no longer be the portfolio stabilizers they once were.
BlackRock believes there are a few key areas of opportunity. Namely, markets that offer stable cash flow offer a built-in return stream; for example, high yield bonds, covered calls, Asian credit markets and public equity infrastructure.
The bottom line is that Treasuries are likely to deliver very low returns, if any, over the next five to ten years. No one asset class can solve today’s income challenge. Investors need to broaden their opportunities that define higher income and portfolio diversification.
Learn more about BlackRock’s research on changing interest rates and the latest economic outlook
