Interest Rate Hikes Present an Opportunity to Invest In Fixed Income Investments

The Director of Financial Markets at the Central Bank of Eswatini (CBE) Dr. Melvin Khomo says extreme levels of volatility are not necessarily a bad thing as they can present an opportunity for investors to make great returns.

Dr. Khomo disclosed this during the Old Mutual Investment Group Thought Leadership Event titled “Innovation in Investing” – Cutting through the Noise. The event was held at the Happy Valley Hotel.

His presentation was on on Monetary Policy in the country and the role of Fixed Income in a stable portfolio.

According to Investopedia Fixed Income investing refers to a lower-risk strategy that focuses on generating consistent payments from investments such as bonds, money-market funds, treasury bonds and bills, and certificates of deposit, or corporate bonds among others.

The experienced Director noted that the continuous hike in interest rates by the CBE is an opportunity for investors to deploy capital.

“What we are noting is that Central Banks globally have aggressively hiked interest rates. This means the potential long-term returns on fixed-income investments are highly positive. In terms of return on investment it makes a lot of sense to deploy capital in the fixed-income space,” he noted.

Dr. Khomo observed that fixed-income investments can also help investors to generate income, preserve investments and also protect investors against inflation.

He also stated that extreme levels of volatility can be an opportunity for investors to deploy more capital.

“Recent data indicates that South African bond yields move together with the Rand. If the Rand depreciates bond yields increase. In recent events, bond yields have been increasing while the Rand was depreciating. Volatility is an opportunity for long-term investors to deploy more cash towards their bond investments.”

Dr. Khomo further advised investors to ensure that they ignore the noise and focus on their investment goals.

“It is certainly tough for investors to deal with noise in the markets, but it helps to have a structured long-term goal. There are ways of dealing with the noise, and one of them is timing the market. If investors have a three, five, or seven-year investment horizon then they can perform very well compared to only a year investment horizon.”

“Secondly, investors should make sure that they build a diversified and resilient portfolio. Having different assets in your investment portfolio helps as they tend to behave differently in market cycles. Diverse asset allocation remains fundamental when building a portfolio.”

Worth noting is that Dr. Khomo was speaking in his personal capacity not necessarily representing the CBE.

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