For investors who have entered the drawdown phase, income is the central objective.
After more than a decade characterised by low and stable yields, the past five years have marked a regime shift, with a material repricing higher in yields and a corresponding increase in the level of income available from fixed income.
In this context, bonds are being positioned to deliver on their income-generating role. However, the other traditional roles of bonds — namely, volatility mitigation and diversification — have become more challenged.
This article qualifies for 30 minutes of CPD. Follow the link below to bank your answers.
Hilary Blandy, manager of the Jupiter Monthly Income Bond Fund, says: “Bonds, and particularly longer duration instruments, have exhibited elevated volatility. The recent repricing in UK and European rate markets underscores the sensitivity of duration to inflation surprises and shifting policy expectations.
“At the same time, the correlation between rates and risk assets has turned more positive in an environment defined by persistent inflation uncertainty and asymmetric risks to growth and policy.”
In other words, bonds are no longer behaving as the reliable shock absorber many retirement portfolios have depended on.
This shift raises a fundamental question for investors approaching or in retirement: what is the role of fixed income in trying to build a resilient retirement portfolio?
Income is back but risk has changed
Blandy says: “Bonds remain a cornerstone of retirement portfolios, primarily through their income-generating capacity.
“However, investors should be mindful that the risk, volatility and correlation properties of fixed income may differ structurally from those observed over the past decade, requiring a more selective and active approach to portfolio construction.”
Yet, this does not diminish the importance of bonds. Instead, it changes how they need to be used.
According to Robin Ellis, director of multi-asset portfolio management at St James’s Place, a well-constructed retirement portfolio today is not about maximising returns, but about maximising resilience.
He argues that structurally higher yields mean bonds should play a larger role than they did five years ago, not just as a source of income, but as a stabiliser of outcomes.
Ellis adds: “For retirees, defensive assets must be capable of delivering positive returns in normal markets and additional upside when equities struggle. High-quality bonds still do this job; commodities, despite their diversification narrative, generally do not.
Two roles, two strategies
Bonds serve two distinct purposes in retirement. The first is income: a predictable cash flow that supports withdrawals without touching the growth engine. The second is stabilisation: dampening portfolio volatility so that a bad equity year does not force a client to panic and realise losses.
That distinction becomes particularly important when translating theory into portfolio construction.