Bonds: Could a Strong Recovery Be Coming?

The global bond market has been under pressure for years. Rising interest rates pushed bond prices lower, while investors had to deal with a very different environment from the era of near-zero rates.

Now, however, the picture may be starting to change.

The term “escape velocity” is increasingly being used to describe the possibility that the bond market could gain enough momentum to move from a long period of weakness into a stronger recovery.

What does this mean for Greece?

For Greek investors, the story is particularly interesting. Greek government bond yields remain significantly higher than they were during the ultra-low-interest-rate era.

If yields eventually fall, the prices of existing bonds can rise. This means investors may potentially benefit not only from the interest income, but also from capital gains.

The same principle applies to many bond ETFs, which allow smaller investors to gain exposure to a diversified basket of bonds rather than buying individual bonds.

But there is an important risk: if bond yields continue to rise, bond prices can fall further.

For Greek investors, therefore, bonds may be returning to the radar — but they are not a risk-free investment.

The key questions are how much interest-rate risk an investor is willing to accept, and how long they are prepared to hold the investment.

After years of being overlooked, bonds may once again become an important part of a diversified portfolio.