Bonds are often overshadowed by equities. Yet their real yield, their role in asset allocation, and their return/risk asymmetry deserve to be reassessed in light of fundamental market mechanisms. We all remember 2022 in the bond markets: the broad-based rise in interest rates pushed markets sharply downward, ending the year with losses close to 13%. As we enter 2026, after three years full of surprises, much of that decline has now been more or less absorbed. Time for an update!

Bonds : an attractive financial instrument

For a long time, bonds were seen as the “boring” part of a portfolio. Low‑yielding, rate‑sensitive, too complicated… In reality, bonds are first and foremost a financial instrument with clearly defined properties: they allow investors to lend money to a government or a company in exchange for a predetermined income stream and the repayment of principal at maturity. Their attractiveness depends less on market trends and more on their initial yield, credit quality, and duration.

What bonds really bring to a portfolio

Stable an predictable income

Unlike equities, whose returns depend fundamentally on earnings growth, a bond provides a clear contractual framework: a coupon and a repayment date. This allows investors to know the theoretical return of their investment in advance and lock it in for a chosen period—often longer than what traditional bank products offer.

A diversification tool

The bond market offers a wide range of possibilities: government or corporate bonds, nominal or inflation‑linked bonds, different currencies, sectors, and regions. This diversity allows investors to tailor a portfolio to specific objectives (income, stability, inflation protection) and reduce exposure to a single asset class.

Fine-tuned risk management

“No guts, no glory.” In investing, you must accept some risk to achieve higher returns. Bonds offer extremely precise risk calibration: choice of issuer, maturity, inflation protection, specific currencies, etc. Bonds are generally less risky than equities, and they also allow investors to choose exactly which type of risk they wish to take. By combining different types of bonds, it becomes possible to construct a portfolio aligned with a defined risk profile rather than passively enduring market conditions.

Bonds or equities : a misleading comparison

Comparing bonds and equities solely on past performance is reductive. Investing in equities is a bet on a company’s future growth. Buying a bond is a contract based on its ability to repay its debt. Some companies even offer, through their bonds, a higher yield than their equity valuation might suggest. This highlights a simple truth: a good investment is not the one people talk about the most, but the one whose price is aligned with the cash flows it generates.

Bonds vs term deposits : a false equivalence

A term deposit is essentially a short‑term loan to a bank at a fixed rate—similar to a short‑term bond. The difference lies in the fact that bond investments offer greater diversification, more issuer choice, liquidity, and a variety of maturities. While a bank deposit concentrates risk on one or two institutions, a bond portfolio can spread it across dozens of issuers.
There is also a difference in reinvestment risk. A very short‑term placement must be rolled over frequently at future, unknown conditions. A longer‑dated bond locks in a yield over an extended period.

Why investing in bonds is not simple

Bonds are often reduced to their interest rate, even though their true characteristics depend on much more: the issuer’s balance sheet strength, the structure of its debt, its ability to generate recurring cash flows, and its sensitivity to economic cycles. Building a bond portfolio therefore requires rigorous financial analysis, mastery of duration, ongoing monitoring of issuers, and continuous adaptation to macroeconomic conditions and market movements.

Diversification adds another challenge: constructing a truly diversified bond portfolio requires significant capital, as it involves multiplying the number of lines, maturities, and issuer types to reduce specific risk.

This is precisely where bond funds provide real added value: they offer immediate, professional diversification, even with small amounts.

A misconception worth debunking

Ultimately, bonds are neither a “risk‑free” asset nor a “useless” one. They are an essential instrument for generating income, stabilizing wealth, balancing risk and visibility, and structuring long‑term asset allocation. In today’s context, they are regaining strong appeal: current interest rate levels offer yields between 2.5% and 4% on the least risky euro or US dollar bonds—significantly higher than the average observed over the past fifteen years.

Seeing bonds merely as a substitute for savings accounts or an inferior alternative to equities overlooks their true role: that of a strategic pillar at the heart of wealth management.

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