Are Bonds still an attractive investment in 2025
Jessica Amodio
Partner and Independent Financial Adviser at GDA
Bonds have traditionally been one of the key pillars of a diversified portfolio. Alongside equities, bonds help investors balance risk and return within their investments. But are they a smart choice in today’s economic environment? To answer that, let’s look at what a bond actually is - and why bonds are regaining attention in the current market climate.
What Is a Bond?
A bond is essentially a loan from you to a government or corporation. When you buy a bond, you’re lending money to the issuer in exchange for regular interest payments (called the "coupon") and the return of the original amount (the "principal") at a set future date (the "maturity").
For example, if you buy a 10-year bond for £1,000 with a 5% annual interest rate, you’ll receive £50 every year for 10 years, and then get your £1,000 back at the end.
Bonds are considered less risky than stocks, making them a cornerstone of conservative and income-focused investment strategies.
Over the past few years, bonds were not the most attractive investment. From 2021 through early 2023, rising interest rates caused bond prices to fall, leading to one of the worst periods for bonds in decades. However, in 2025, the outlook has changed because:
Interest rates may have peaked, so if rates stabilise—or even begin to fall—existing bonds with higher yields become more valuable.
For the first time in years, investors can earn solid income from bonds.
Bonds offer diversification and safety with continued uncertainty in global markets. Bonds, especially government bonds, offer that stability and serve as a hedge against stock market volatility.
Bonds may therefore be a good choice for those who have retired and income-focused investors, balanced portfolio builders and short-term investors. For these investors, bonds offer consistent cashflow with low risk, a reduction in portfolio volatility, and attractive yields with lower duration risk.
However, even though bonds are relatively low risk, there is always the risk of interest rates rising which would cause the bond price to fall, an increase in inflation which would erode the value of the interest payments, and corporate bonds carry the risk of default, especially in economic downturns.
Which Bond Funds have made the GDA Fund Panel
Rathbone Ethical Bond
The objective of the fund is to deliver a greater total return than the IA Sterling Corporate Bond sector, after fees, over any rolling five-year period. The manager uses the IA Sterling Corporate Bond sector as a target for the fund’s return because it aims to consistently outperform the average return of the companies competitors. This fund also applies environmental and social criteria as set out in the investment objective and policy. The combination of investment and ethics mean the fund’s investments have a sound investment case and a solid ethical record.
Last buy/sell price: 242.36p
JPM Global High Yield Bond
The objective of the fund is to provide a high return from a diversified portfolio of bond and other debt securities. The Fund will invest primarily in bond and other debt securities (mainly below investment grade securities or unrated securities) of issuers in developed countries, primarily corporations and banks. The investment approach uses a globally integrated research driven investment process that focuses on analysing fundamental, quantitative and technical factors across countries, sectors and issuers; and a bottom-up security selection approach based on assessing relative value across the global developed market high yield credit spectrum.
Last buy/sell price: 167.00p
The bottom line is that yes, bonds are once again a compelling part of a well-diversified portfolio in 2025. With yields at attractive levels, interest rates potentially stabilising, and the stock market facing periodic turbulence, bonds offer a much-needed mix of income and safety.
That said, the key is to be selective. Consider the bond type (government vs. corporate), duration (short vs. long term), and credit quality. A bond ETF or a diversified fixed-income fund may be a smart way to gain exposure without picking individual bonds.
As always, your investment decisions should align with your financial goals, risk tolerance, and time horizon. But if you’ve been ignoring bonds, 2025 may be the year to take another look.
This article is for general information and does not constitute personal financial advice. If you’re unsure what’s best for you, seek independent financial advice.
