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At M&G, bonds are an important part of how we seek to generate long-term returns and manage risk for our investors.
The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.
While many people are more familiar with stocks and shares, bonds are actually far more common. In fact, the global bond market is much larger than the global equity market.
Whether they’re used by governments to borrow money to pay for public spending or by businesses to fund their growth, bonds are effectively loans which allow the lenders (bond investors) to receive a regular income from the interest paid.
Case study - Aston Martin
The British car manufacturer issued a new bond in 2017 to finance the growth of its business, including building a new plant in St Athan, South Wales. Watch the video to find out why the M&G retail bond team invested in these bonds for our customers.
What makes bonds different from a private loan - such as a loan a bank might make to individual - is that they can be bought and sold like shares. The price of a bond is influenced by how much interest it pays (known as the yield) and how confident investors feel about the ability of the borrower to pay the interest and repay the loan. The price also depends on macro-economic factors, such as interest rate levels, inflation and the general economic outlook.
Because their interest payments are fixed over the life of the loan, bonds are useful to investors looking for a steady income. There is also the opportunity to generate a return if the market price of the bond rises after you buy it.
However, like equities, investing in bonds does come with a certain amount of risk. There is always a possibility that the borrower may experience financial difficulty and, as a result, may not be able to pay the interest or repay the loan. Investors are therefore compensated for lending to riskier borrowers by being paid higher levels of interest. Understanding these potential risks, and judging whether investors are getting enough reward for taking them, is a crucial part of our job as investment managers.
At M&G, we invest in a wide range of bonds on behalf of our customers. These include:
Some of us also run funds or strategies with the freedom to invest in any type of bond, which aim to maximise long-term returns for our investors.
Find out who our customers are, and some of the reasons why they invest with us.
Discover some of the investments we make for our customers across the world.
Find out about our approach to investing - from our fund managers.
Read about some of the alternative investments we make on behalf of our customers, such as infrastructure debt and private lending.