After several years of low or even negative rates, the bond market is picking up. And while the stock market is falling, yields on some bonds are at their highest in 10 years. Should this be seen as an opportunity for your savings?
The price hike continues. In France, inflation reached 5.6% over 1 year in September, according to INSEE. The increases are even more marked in the euro zone (10%) and in the United States (8.3% in August).
So to bring inflation into line, central bankers have toughened up. In September, the European Central Bank (ECB) increased its key rate by 75 dots basis, the largest increase in its history.
Same story on the side of the Fed. The US central bank has raised interest rates 75 dots basis for the third consecutive time. Its chairman, Jerome Powell, declared on the occasion that the Fed was firmly resolved to bring inflation back 2%.
These rate increases have several impacts, in particular on the bond market, long neglected by savers in favor of riskier (and more profitable) assets, such as stocks or cryptocurrencies. But the wheel turns. So should you bet on bonds to protect your savings against inflation?
Mortgage loan, life insurance, Livret A… What does the ECB rate hike change for you?
Rate hike
For starters, what exactly are we talking about? A bond works like a acknowledgment of debt, explains Marc Tempelman, co-founder of the Cashbee mobile savings solution. That is to say, when you buy a bond, you agree to lend money to the issuer, in return for a fee, called the coupon .
And precisely, with the rise in rates, the amount of coupons starts to rise again. France, for example, finances itself in part through the issuance of Obligations Assimilables du Trsor (OAT). But the rate of 10-year OATshas shown a clear rise since the start of the year. This rate was still negative in August 2021, notes Philippe Crevel, director of the Cercle des pargnants. Today, it exceeds the 2.7% .
France is not an isolated case. Last week, the yield on US 10-year bonds broke through the 3.5%for the first time in 11 years. While the German same chance rate has reached 1.952% its highest level since 2014.
Corporate bond rates are also rising. In France, OAT rates serve as a benchmark. If these rates go up, that of the bonds issued by companies such as LVMH, Orange or SNCF will follow the same trajectory, indicates Marc Tempelman. On paper, therefore, bonds are bringing in more money than they have in a long time. However, should you rush to this type of investment? Nothing is less certain.
Retirement : save by paying less tax. 13 contracts compared
Risk of capital loss
Rates are rising, but they remain low in relation to inflation and we can expect further increases in the coming months, notes Philippe Crevel. However, if the rates increase in the future, the net asset value of your bonds, that is to say the value at which you can resell them, is likely to decrease.
For example: if you buy a bond 100 euroswith a fixed rate of 2.7%but that tomorrow the rates go up 4% your bond will no longer be worth 100 euros on the secondary market, because it will have less interestingthat the new bonds pay 4%.
If you plan to keep your bond until its term, this is not really a problem. But if you decide to resell it earlier, you risk losing part of your capital, warns Marc Tempelman. Caution is therefore still in order, as the bond market is not without volatility.
According to your risk appetite, several choices are available to you. Government bonds are the safest, but also the least profitable. Conversely, so-called “high-yield” are issued by companies in turnaround or with a weak financial surface. The risk that these companies fail to repay their debts is higher, which translates into better remuneration, notes Marc Tempelman.
LEP, SCPI… These six investments can protect your savings against soaring prices
Bond funds
As an individual, you can buy and sell OATs directly on the secondary market. However, most investors prefer to invest through bond funds, which can be placed in life insurance, in an equity savings plan or in a retirement savings plan.
The advantage of these funds is that they are accessible a few tens of euros and that they allow you easy access to a well-diversified bond portfolio by geographic region and by type of issuer, which limits the risk of default, specifies Marc Tempelman.
This service has a price. But he remains modest. According to a report by the Investment Company Institute (ICI), the worldwide association of regulated funds, the fees levied by management companies in Europe on bond undertakings for collective investment (UCI) represented on average 0.73%the net amount of assets under management.
Life insurance: comparison of offers