Bond markets: carry makes a return

In recent years, low and even negative interest rates had curbed the appeal of investing in bonds and potentially holding them to maturity to capture returns from bond carry.

However, rising interest rates in recent months have changed matters considerably. French 5-year and 10-year OAT[3] yields have risen back above 2% per annum. The average yield on 5–7-year euro investment grade[1] corporate bonds now exceeds 4% (BofA 5–7-Year Euro Corporate Index), compared to just 0.7% at the start of the year.

Corporate bond yields are now significantly higher (at 4.1% for investment grade and 8.1% for high yield[2]) than the average levels seen over the past two decades, enabling investors to see bond markets as an attractive long-term investment given the improved risk–return profile. In fact, carry is now set to become the main contributor to bond performance.

The opinion expressed above is dated October 7th, 2022 and is subject to change.

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This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS. LAZARD FRERES GESTION – a simplified joint stock company with share capital of €14,487,500 – Paris Trade and Companies Registry No. 352 213 599. 25, RUE DE COURCELLES – 75008 PARIS, FRANCE

Termes et définitions
1. investment grade. L'expression "Investment Grade" (en français, "notation de qualité d'investissement") fait référence à la catégorie de qualité attribuée par les agences de notation aux obligations et aux émetteurs d'obligations.
2. high yield. L’expression “high yield”, en français “haut rendement”, est couramment utilisée dans le domaine de la finance et des…
3. OAT ( OAT ) Les OAT, ou Obligations Assimilables du Trésor, sont des titres de dette émis par le Trésor public français.…
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