A kit box of dream income tools

A kit box of dream income tools

As 2023 commences in earnest, a happy by-product of last year’s volatility is the rise in bond yields. The increase in inflation across the UK, euro area, and the US, has brought bonds, including core government bonds, into play for investment strategies charged with delivering income. This has added a significant and highly useful string to our bow.

As good as economic forecasters are, they can never predict all events. In the UK for example, the rapid rotation of Prime Ministers and Chancellors in the Autumn of 2022, wasn’t in anyone’s outlook. The volatility that followed those events, especially in bond markets, was of a magnitude that sent tremors through the industry; a shake-out in LDI strategies and calls for reform to investment regulations. And of course, in the two years preceding, we had Covid and global lockdowns that until they became a reality would have been cast as the stuff of movie imaginations.  


This year, well we don’t know what the universe will bring but as 2023 commences in earnest, we are well prepared. A happy by-product (and there are few) of last year’s volatility is the rise in bond yields. The increase in inflation across the UK, euro area, and the US, has brought bonds, including core government bonds, into play for investment strategies charged with delivering income. This has added a significant and highly useful string to our bow.


UK Gilts now offer a similar yield to the FTSE All Share but below core inflation. Inflation isn’t expected to stay at these levels though and the Bank of England announced earlier this month that it expects inflation to begin to fall from the middle of this year and ‘be around 4% by the end of the year and continue falling towards our 2% target after that.’


Dividends, bond yields and inflation

Dividends, bond yields and inflation

Past performance is not an indication of future performance

Source: Columbia Threadneedle and Bloomberg as at 25 October 2022

Our ability to hold core government bonds without sacrificing income is a welcome addition to our toolbox. With yields around 3.5 – 4%, they offer an attractive level of income alongside very useful diversification properties. We had begun to meaningfully increase our position in government bonds during the third quarter of 2022, taking advantage of the rising yields to build up duration exposures to high quality fixed income.


Policy tightening (higher interest rates and the withdrawal of quantitative easing) is feeding through into underlying economies and supply chains are realigning across the globe. This points towards disinflation and as a result, yield decreases. However, we don’t expect the decline to be rapid. Labour markets remain tight and structural themes born out of Covid, such as deglobalisation, pose upside risks to inflation.


This elevated core government bond yield environment improves not just the ability to deliver on the 4 – 4.5% yield target but also the diversification properties of our multi-asset income strategy. As assets with an increased scope to rally in a ‘classic’ risk off event as well as providing a higher level of income they provide characteristics that dramatically improve our ability to manage volatility whilst providing income as multi-asset investors.

Robert Plant
Director, Portfolio Manager, Multi Asset Solutions
Share on linkedin
Share on email

You might be interested in...

26 February 2024

Low inflation to create unusual dilemma for the Bank of England

In an election year, pressure for a cut in rates will only grow as inflation eases. What is the BoE to do?
Watch time - 4 min
19 February 2024

UK recession: what next?

Why an upturn looks likely and what that could mean for markets.
Watch time - 4 min
12 February 2024

How far will interest rates fall?

Discussing the extent of cuts and the implications for markets?
Watch time - 4 min

Why Columbia Threadneedle for low-cost multi-asset

Columbia Threadneedle Universal MAP redefines value through active multi-asset solutions and business support at a passive price point. Fund OCFs at 0.29%-0.39%.

Our Portfolio

The Columbia Threadneedle Universal MAP and Sustainable MAP ranges offer risk-controlled portfolio options designed to cover a host of client growth, income and sustainability needs.

Important information

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

For professional investors only.

This financial promotion is issued for marketing and information purposes only by Columbia Threadneedle Investments in the UK.

The Fund is a sub fund of Columbia Threadneedle (UK) ICVC III, an open ended investment company (OEIC), registered in the UK and authorised by the Financial Conduct Authority (FCA).

English language copies of the Fund’s Prospectus, summarised investor rights, English language copies of the key investor information document (KIID) can be obtained from Columbia Threadneedle Investments, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: [email protected] or electronically at www.columbiathreadneedle.com. Please read the Prospectus before taking any investment decision.

The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. The manager has the right to terminate the arrangements made for marketing.

Financial promotions are issued for marketing and information purposes; in the United Kingdom by Columbia Threadneedle Management Limited, which is authorised and regulated by the Financial Conduct Authority; in the EEA by Columbia Threadneedle Netherlands B.V., which is regulated by the Dutch Authority for the Financial Markets (AFM); and in Switzerland by Columbia Threadneedle Management (Swiss) GmbH, acting as representative office of Columbia Threadneedle Management Limited. In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA).  For Distributors: This document is intended to provide distributors with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

Play Video

CT Property Trust- Fund Manager Update

Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque laudantium