A bond is a fixed-income instrument where a person lends money to a government or a company at a particular interest rate for a fixed time. The entity repays individuals with interest in addition to the original face value of the bond.
Bond yields are inversely related to bond prices, meaning if yields are up, the value of the bond declines and vice versa. This relationship between yield and prices can be further explained by duration. Duration describes how much a bond’s price will rise or fall with a change in interest rates.
Bonds are usually used as diversifiers in a portfolio as they help reduce risk during market downturns. Bonds can have varying maturity, ranging from a few months to years.
Here, we will look into short-term government bonds (one to three years) and long-term US government bonds (10 to 30 years).
Short-term bonds vs long-term bonds
Interest rate sensitivity: Short-term bonds are less affected by interest rate changes due to their shorter maturity and, hence, lower duration. As they are paid off in just a few years, they leave a very limited window for default or large price fluctuations. Therefore, these funds are considered low-risk, low-volatility instruments and are preferred by investors when they believe rates have not topped off or will stay high. On the other hand, long-term bonds are more sensitive to interest rate fluctuations and have higher duration. That’s because the longer the maturity, the higher the potential for large price fluctuations, given interest rate changes. These bonds are preferred by investors when rates are believed to have topped off and a cutting cycle will start soon.
Liquidity: Short-term bonds are generally more liquid than long-term bonds, meaning they can be bought or sold more easily. That’s because the market for short-term bonds is more active. Long-term bonds can be less liquid, especially during economic uncertainty or market volatility, as seen currently.
Some of the best performing short-term bond funds are iShares 1-3 years Treasury Bonds ETF (SHY), Schwab Short-Term US Treasury ETF (SCHO) and Vanguard Short-Term Treasury ETF (VGSH). These exchange-traded funds have large assets under management, a low expense ratio and strong overall performance. For context, the above-mentioned ETFs have given a total return of approximately 4 per cent over one year compared to -3 per cent return of the iShares 20+ Year Treasury Bond ETF (TLT).
The investment opportunity
In September 2024, the US Federal Reserve began its first rate cut in four years, bringing the target rate to 4.25 per cent to 4.5 per cent by December. The outlook for 2025 predicts stronger growth and lower unemployment. However, the inflation forecast was raised from 2.2 per cent to 2.5 per cent, higher than the Fed's target of 2 per cent.
Given the current market conditions, it is estimated that US yields are likely to stay high, within a range of 4 per cent to 4.75 per cent for the coming year, according to Morgan Stanley. With solid economic growth, a stable unemployment rate and sticky inflation expectations, enthusiasm for long-duration bonds has reduced as rate-cut expectations for the year have come down. Markets now have a wait-and-watch approach as they evaluate economic conditions and the likely impact of US President Donald Trump's policies, with around two rate cuts priced in by the markets.
Moreover, the US government is running a deficit (spending more than earnings in taxes) of almost $2 trillion and is expected to continue to do so. Hence, it would need to issue bonds to fund this deficit, a large portion of which would be long-maturity bonds (10 to 30 years). An increased supply of long-dated bonds would put downward pressure on prices and keep rates on longer-term bonds high.
Additionally, investors are asking for higher returns on long-term bonds because they want to be compensated for risks like inflation or changes in the economy over time. Moreover, it is expected that the rates on 10-year bonds could rise by about 1.3 per cent, further putting pressure on long-term bond prices.
All these factors together suggest that yields on long-term bonds are likely to stay elevated and volatile in the coming months, making short-term bonds a compelling investment option.
Moreover, investing in short-duration funds provides investors with the potential for consistent income while maintaining flexibility during uncertain times and can also help to lock in higher yields.
Vijay Valecha is chief investment officer at Century Financial
Some of Darwish's last words
"They see their tomorrows slipping out of their reach. And though it seems to them that everything outside this reality is heaven, yet they do not want to go to that heaven. They stay, because they are afflicted with hope." - Mahmoud Darwish, to attendees of the Palestine Festival of Literature, 2008
His life in brief: Born in a village near Galilee, he lived in exile for most of his life and started writing poetry after high school. He was arrested several times by Israel for what were deemed to be inciteful poems. Most of his work focused on the love and yearning for his homeland, and he was regarded the Palestinian poet of resistance. Over the course of his life, he published more than 30 poetry collections and books of prose, with his work translated into more than 20 languages. Many of his poems were set to music by Arab composers, most significantly Marcel Khalife. Darwish died on August 9, 2008 after undergoing heart surgery in the United States. He was later buried in Ramallah where a shrine was erected in his honour.
Dates for the diary
To mark Bodytree’s 10th anniversary, the coming season will be filled with celebratory activities:
- September 21 Anyone interested in becoming a certified yoga instructor can sign up for a 250-hour course in Yoga Teacher Training with Jacquelene Sadek. It begins on September 21 and will take place over the course of six weekends.
- October 18 to 21 International yoga instructor, Yogi Nora, will be visiting Bodytree and offering classes.
- October 26 to November 4 International pilates instructor Courtney Miller will be on hand at the studio, offering classes.
- November 9 Bodytree is hosting a party to celebrate turning 10, and everyone is invited. Expect a day full of free classes on the grounds of the studio.
- December 11 Yogeswari, an advanced certified Jivamukti teacher, will be visiting the studio.
- February 2, 2018 Bodytree will host its 4th annual yoga market.
Global state-owned investor ranking by size
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United States
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China
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UAE
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Japan
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Norway
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Canada
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Singapore
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The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
Company profile
Name: The Concept
Founders: Yadhushan Mahendran, Maria Sobh and Muhammad Rijal
Based: Abu Dhabi
Founded: 2017
Number of employees: 7
Sector: Aviation and space industry
Funding: $250,000
Future plans: Looking to raise $1 million investment to boost expansion and develop new products
Ferrari 12Cilindri specs
Engine: naturally aspirated 6.5-liter V12
Power: 819hp
Torque: 678Nm at 7,250rpm
Price: From Dh1,700,000
Available: Now
THE SIXTH SENSE
Starring: Bruce Willis, Toni Collette, Hayley Joel Osment
Director: M. Night Shyamalan
Rating: 5/5
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SPECS
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The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
Killing of Qassem Suleimani
Dubai Bling season three
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A Bad Moms Christmas
Dir: John Lucas and Scott Moore
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UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
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PROFILE BOX
Company name: Overwrite.ai
Founder: Ayman Alashkar
Started: Established in 2020
Based: Dubai International Financial Centre, Dubai
Sector: PropTech
Initial investment: Self-funded by founder
Funding stage: Seed funding, in talks with angel investors
Christopher Robin
Starring: Ewan McGregor, Haley Atwell, Jim Cummings, Peter Capaldi
Three stars
Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Profile of Tamatem
Date started: March 2013
Founder: Hussam Hammo
Based: Amman, Jordan
Employees: 55
Funding: $6m
Funders: Wamda Capital, Modern Electronics (part of Al Falaisah Group) and North Base Media
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'Operation Mincemeat'
Director: John Madden
Cast: Colin Firth, Matthew Macfayden, Kelly Macdonald and Penelope Wilton
Rating: 4/5
Globalization and its Discontents Revisited
Joseph E. Stiglitz
W. W. Norton & Company
