Asset Allocator's Soapbox: Where is best for income?

Earlier this year, we witnessed much excitement around the high yield sector. With returns on cash still abysmal (real yields -4%), and value debatable in parts of the bond market, the relative attraction was evident. For us, however, it also represented a predictable game of yield-chase, with scant attention paid to risk. Spreads relating to credit and emerging market debt have narrowed and real yields have come down as inflation has picked up. The argument is that the carry from a higher coupon mitigates the impact of rising yields in Western government bond markets. However, with infl...