Payden & Rygel: Bonds regain centre stage
After several years in which equities and alternatives dominated investor attention, fixed income is once again taking a leading role. According to a new report from Payden Rygel, 'Beyond Basic: Why Bonds Remain Essential for Investors', bonds continue to be critical for income generation, diversification, and risk management.
'Recent market conditions haven’t diminished the importance of bonds; they have reshaped how they should be used,' said Eric Souders, CFA, Director and Portfolio Manager at Payden & Rygel. 'Today’s market requires active, selective fixed income management. Quality and discipline matter.'
The report highlights several key insights:
- Back to Basics, but Smarter: With yields at their most attractive levels in over a decade, bonds are once again contributing meaningful income and providing portfolio balance.
- Active and Selective Wins: In an environment of uneven growth and tighter credit spreads, identifying quality issuers, managing duration thoughtfully, and being selective across sectors are key to capturing opportunities.
- Quality is the New Alpha: High-quality bonds, including investment-grade corporate and sovereign debt, offer stability, liquidity, and consistent income, particularly in slower-growth environments.
- Beyond the 60/40: While 2022 challenged traditional asset allocation frameworks, the report emphasizes that fixed income remains central to diversification. Adjustments, not abandonment, may be warranted, complemented by measured allocations to alternatives.
- Repricing Opportunity: Yields remain above their five- and ten-year averages, creating more attractive starting valuations and providing a buffer against market volatility.
- Global Nuances Matter: Certain emerging markets show improving fundamentals and favorable policy trends, while developed markets face policy uncertainty, making rigorous credit selection essential.
Bottom Line: Bonds remain a foundational component of resilient portfolios, offering steady income, risk mitigation, and diversification.
While some investors continue to question the relevance of the traditional 60/40 portfolio, Payden & Rygel’s analysis suggests that fixed income allocations remain an essential part of portfolios. 'The question isn’t whether bonds are still relevant,' Souders added. 'It’s how investors can use them more strategically across sectors, durations, and geographies to support long-term goals.'