Fixed income just flipped - how to assess the risk

The United States 10-year Treasury yield - a longer maturity bond yield - hit a 15-year high of 4.34 per cent in August, altering how a fund manager feels about fixed income.

“The market is starting to worry whether it is truly as risk-free as we’ve all assumed for all these decades,” Salt Funds head of global diversified funds Greg Fleming told Markets with Madison.

Bonds are typically an asset held in more conservative investment portfolios. As the price of bonds fell, the yield increased. The 10-year yield was sitting closer to 4.1 per cent on Friday morning.

Fleming said investors should reassess their appetite for risk as a result of the yield rally.

“Once there becomes an element of instability in risk-free, then the question arises, are the other assets actually as risky as we thought they were, or contrarily, are they all just much more risky?”

He explained what could be causing it, with his finger pointing at the scale of US debt, what he called “Biden’s spending binge,” and the US debt downgrade by ratings agency Fitch in August.

Watch Fleming explain what’s happening in the fixed income market in today’s episode of Markets with Madison above.

Plus, we take a look back at some of the best insights from executives and experts on the show so far, to celebrate the 50th episode. Enjoy.

Get investment insights from the experts on Markets with Madison every Monday and Friday on the NZ Herald.

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Madison Reidy is the host of New Zealand’s only financial markets show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.