Top of main content

Start investing: Why choose global investment grade corporate bonds over cash or short-term investment?

26 Jun 2023

Ashis Dash

Director and Head of Fixed Income Funds, HSBC Wealth and Personal Banking


Following successive rate hikes by major central banks during 2022 and H1 2023, deposit rates in many developed markets (DM) have become more attractive. The hawkish moves by key DM central banks have also pushed bond yields higher.

While short-term investments, such as time deposits and short-term funds do have their benefits within a portfolio, global investment grade (IG) corporate bonds may be preferred due to the following reasons:

  1. Longer-term growth potential: Yields are currently at a decade high, offering a good entry point to invest in global IG corporate bonds as policy rates are at or near their peaks in developed markets. If the global economy remains resilient, global IG corporate bonds may deliver higher income than USD term deposits. Even if policy rates fall, investors may still benefit from price appreciation, in addition to the coupon, as yields move lower with the fall in policy rates, likely offsetting wider credit spreads.

  2. No lock-in period: Global IG corporate bonds allow for daily trading and don’t have lock-in periods, nor any penalty in case you need to withdraw your money before the pre-set time period such as with time deposits.

  3. Lower reinvestment risk: Investing in fixed-term deposits involves reinvestment risk if rates drop. For example, a 1-year USD term deposit pays 4%. If interest rates fall by 1% over the next 12 months, investors will only be able to roll over their maturing term deposits at 3%. In contrast, global IG corporate bonds, which currently have a duration1 of 6 years and yield 5%, would earn investors 11%2, assuming no changes to credit spreads.

  4. Diversification: Global IG corporate bonds tend to have a negative to low correlation with equities during bear markets. Since 2000, the Bloomberg Global Aggregate Corporate Index (hedged to USD)3 has shown a correlation of -0.5 to 0.1 with the MSCI World Index during periods when equity markets sold off by over 20%. The only exception was 2022 when the correlation was 0.5. Therefore, global IG corporate bonds can be a helpful diversifier within a portfolio, especially during a recession.

Based on data from 2000 onwards, bonds have generally outperformed cash once policy rates have peaked because of the higher rate sensitivity of the asset class. Although tempting, higher yields on cash and short-term bonds come with an opportunity cost of missed returns during periods of looser monetary policy, and/or recessions, as yields often decline when central banks ease monetary policy.

Accessing global investment grade corporates through funds

Accessing global IG bonds through mutual funds allows investors to participate in a diverse portfolio, holding a range of securities from many different issuers and maturities. This reduces the effects of specific risks linked to individual issuers/bonds and can help in better preserving capital, generating returns and ensuring liquidity compared to holding a single security. Nevertheless, investors should also be mindful of the risk of losing their capital when investing in mutual funds and the costs incurred for investing in these funds. 

Investors who capture current high bond yields are likely to receive better returns over the lifetime of the bond than by holding cash

Source: Bloomberg, HSBC Global Private Banking as at 24 May 2023.


1. Duration of the Bloomberg Global Aggregate Corporate Index (hedged to USD) is c. 6 years.

2. Duration measures the sensitivity of a bond’s price to changes in interest rates. For a bond (or a fund) with duration of 1 year, a fall in interest rates by 1% would mean that the bond’s price will increase by approximately 1%, assuming no changes to credit spreads. Similarly, for a bond with 6 years of duration, its price will increase by approximately 6% when interest rates fall by 1%, plus the 5% yield, getting to a total return of 11%. 

3. Data for Bloomberg Global Aggregate Corporate Index (hedged to USD) is available from Sep 2000. For periods prior to that Bloomberg US Corporate Bond Index has been used.

Related Insights

Index funds offer investors a simple, low cost way to invest in a range of assets...[16 Aug]

Some people find bonds ‘boring’ because you don’t often hear much about them in the news...[24 Mar]

Most investors want to time the market in the hope that.....[3 Mar]

Important information for Customers

WARNING: THE CONTENTS OF THIS DOCUMENT HAVE NOT BEEN REVIEWED BY ANY REGULATORY AUTHORITY IN SINGAPORE OR ANY OTHER JURISDICTION. YOU ARE ADVISED TO EXERCISE CAUTION IN RELATION TO THE INVESTMENT AND THIS DOCUMENT. IF YOU ARE IN DOUBT ABOUT ANY OF THE CONTENTS OF THIS DOCUMENT, YOU SHOULD OBTAIN INDEPENDENT PROFESSIONAL ADVICE. This document has been issued by HSBC Bank (Singapore) Limited (the "Bank") in the conduct of its business in Singapore and may be distributed in other jurisdictions where its distribution is lawful. It is not intended for anyone other than the recipient. The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. This document must not be distributed to the United States, Canada or Australia or to any other jurisdiction where its distribution is unlawful. All non-authorized reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. This document has no contractual value and is not and should not be construed as an offer or the solicitation of an offer or a recommendation for the purchase or sale of any investment [in any jurisdiction in which such an offer is not lawful] or subscribe for, or to participate in, any services. The Bank is not recommending or soliciting any action based on it. The information stated and/or opinion(s) expressed in this document are provided by HSBC Global Asset Management (Singapore) Limited. We do not undertake any obligation to issue any further publications to you or update the contents of this document and such contents are subject to changes at any time without notice. They are expressed solely as general market information and/or commentary for general information purposes only and do not constitute investment advice or recommendation to buy or sell investments or guarantee of returns. The Bank has not been involved in the preparation of such information and opinion. The Bank makes no guarantee, representation or warranty and accepts no responsibility for the accuracy and/or completeness of the information and/or opinions contained in this document, including any third party information obtained from sources it believes to be reliable but which has not been independently verified. In no event will the Bank or HSBC Group be liable for any damages, losses or liabilities including without limitation, direct or indirect, special, incidental, consequential damages, losses or liabilities, in connection with your use of this document or your reliance on or use or inability to use the information contained in this document. In case you have individual portfolios managed by HSBC Global Asset Management Limited, the views expressed in this document may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Global Asset Management Limited primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity. The information contained within this document has not been reviewed in the light of your personal circumstances. Please note that this information is neither intended to aid in decision making for legal, financial or other consulting questions, nor should it be the basis of any investment or other decisions. You should carefully consider whether any investment views and investment products are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. The investment decision is yours but you should not invest in any product unless the intermediary who sells it to you has explained to you that the product is suitable for you having regard to your financial situation, investment experience and investment objectives. The relevant product offering documents should be read for further details. Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Such statements do not represent any one investment and are used for illustration purpose only. Customers are reminded that there can be no assurance that economic conditions described herein will remain in the future. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We can give no assurance that those expectations reflected in those forward-looking statements will prove to have been correct or come to fruition, and you are cautioned not to place undue reliance on such statements. We do not undertake any obligation to update the forward-looking statements contained herein, whether as a result of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investment involves risk. It is important to note that the capital value of investments and the income from them may go down as well as up and may become valueless and investors may not get back the amount originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Past performance information may be out of date. For up-to-date information, please contact your Relationship Manager. Investment in any market may be extremely volatile and subject to sudden fluctuations of varying magnitude due to a wide range of direct and indirect influences. Such characteristics can lead to considerable losses being incurred by those exposed to such markets. If an investment is withdrawn or terminated early, it may not return the full amount invested. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavourable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in certain jurisdictions. Narrowly focused investments and smaller companies typically exhibit higher volatility. There is no guarantee of positive trading performance. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Mutual fund investments are subject to market risks. You should read all scheme related documents carefully. © Copyright. HSBC Bank (Singapore) Limited (Company Registration No. 201420624K). All rights reserved.