Solving the income puzzle

There is a puzzle at the centre of financial markets. The global economy is growing, there are signs of inflation and interest rates are going up, yet yields remain low. In this article, James Foster, manager of the Artemis Monthly Distribution fund, unpicks this conundrum and looks at where investors can find income.

There is a puzzle at the centre of financial markets. It comes in two parts.

First, every major region of the global economy is growing and there are signs of inflation everywhere. Meanwhile, interest rates are moving higher in the US – and the UK may follow later this year. That combination should be awful news for government bonds. So why do their yields remain rooted at pitifully low levels more consistent with slowing growth?

Second: with yields so low, buying and holding government bonds to maturity seems almost certain to result in a negative real return. Given that, where else can investors look for income?

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