If one is talking about cool, hip, and trendy investments, bonds rarely are the center of discussion. In recent years, people have set aside investment bonds in favor of flashy, volatile assets like Tesla and Bitcoin. However this year, we are seeing bonds make a comeback. Due to the global recession caused by Covid-19 lockdowns, investors are flocking from the falling stock market to favor safety instead of high yield.
Why do times of economic uncertainty often correlate with increased interest in investment bonds? The keyword here is risk. When times are tough, people don’t want to risk as much. Governments in developed countries, even with all their problems, usually have low default risk.
To quickly summarize, governments raise money by issuing bonds and then attract investors looking for some sort of stable security. Unlike private companies on the stock market, governments are much less likely (almost 0%) to default and go out of business. Then, when you add a pandemic into the mix, bonds become even more attractive.
Central banks are dropping rates to zero and buying up bonds at increased rates. General economic concerns are also increasing which is causing investors to search for a safe haven asset that will bring them decent yield. The Morningstar UK 10+ Year Core Bond, for example, shows returns of 10% in 2020. The last time it performed this well was 2016 during the surprise Brexit vote that shocked the UK market and ignited financial uncertainty for citizens. Now, that uncertainty is back and investors don’t want to risk their hard-earned cash on volatile assets for now.
Judging from the short term data, you can see investment bonds are successful, especially from the month of August. However, are investment bonds worth it in the short term? That depends on a few key factors. Most importantly are low-interest rates in central banks and low inflation.
Both of these are great for helping bond prices rise but how long can central banks keep this in check? With the massive amount of money printing going on this year, many experts predict inflation to take off too new heights which would seriously hinder bond prices.
Inflation makes bond yields less competitive. For those looking towards corporate bonds, those also could become high risk since many companies are expected to go bankrupt in the aftermath of the Covid-19 crisis. So what’s next for investors that want a safe, stable investment with minimal risk? Are investment bonds worth it or is there another solution?
YouHodler’s famous savings accounts are a simple and profitable alternative to investment bonds. For fans of USD-backed stablecoins, you can earn 12% APY on Tether (USDT), TrueUSD (TUSD), HUSD, Paxos (PAX), and USD Coin (USDC). EUR-backed stablecoins are coming soon. In addition, users can also earn passive income off gold via the Paxos Gold (PAXG) stablecoin.
This has two benefits:
1. You are profiting from the natural increase of gold prices.
2. You are earning 8.2% interest per year from YouHodler just for holding it on our platform.
Lastly, for people who don’t have faith in the fiat or precious metal markets, YouHodler also pays interest on cryptocurrency. Earn interest in popular cryptocurrencies like Bitcoin (4.8%), Ethereum (4.5%), Chainlink (6.2%), and many more. This is a fantastic way to take advantage of the rapid growth of cryptocurrency assets while also earning yearly, passive income on them regardless of the market’s condition.
This year has been a fantastic one for investment bonds but in the long term, it’s still an uncertain investment. Instead, joining the new digital economy and yield all the same benefits of investment bonds but with a more promising long-term outlook.