Deflation is generally positive for the investment case for bonds, as if the price of goods and services is falling, then the fixed income paid by a bond is worth more.
Matthew Yeats, senior investment manager at Seven IM says with the income from bonds being so low, his approach is now to aim for a positive total return from bonds and generate the income a client needs from selling those bonds for a profit if necessary.
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He says investors should be “agnostic” about whether the income they receive in retirement comes from capital or income.
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