Instead, he urges investors to think about all instruments, but especially government bonds, in a total return context.
“Income is an important part of the long-term return available from bonds, but with bond yields at such a low base, it is easy for income to be eroded quickly by rising yields,” he suggests.
“An investor in UK government bonds could have been perfectly [positioned] with their income yield of around 1.2 per cent in December last year, only to have had more than three years of income wiped out through capital losses as the yield moved to a value of around 1.6 per cent.”
For some, the opportunity to move further up the risk scale provides more opportunities for income in this market.
Mr Sriharan has spotted an opportunity for income investors in sovereign emerging market debt (EMD).
“While QE had the unquestionable effect of raising asset prices, through the portfolio rebalancing effect, the impact on EMD was less clear as the wider region navigated the post-crisis period without the luxury of their own central bank support.
“This would suggest that EMD is less likely to suffer from steep falls in price as global monetary policy begins to tighten towards the end of the cycle.”
He notes: “When combined with synchronised growth in the global economy and a more stable domestic picture (both financial and political), the income opportunities in the large and diverse universe of EMD should not be ignored.”
But Mr Jones maintains a more cautious stance, having previously told FTAdviser it is “complacent” to think inflation will rise, so therefore the higher yields offered on riskier bonds do not justify the additional risks.
He has reduced his exposure to emerging market bonds in the fund.
BlackRock's global chief investment strtaegist, Richard Turnill, explains why he is long on short bonds, arguing that "a rapid rise in short-term yields in US government debt is restoring their appeal".
Source: BlackRock Investment Institute/Thomson Reuters
He says: "The steady increase in shorter-maturity bond yields provides a thicker cushion against concerns around further rises in interest rates. The light green line in the chart (above) shows interest rates would need to jump more than one percentage point to wipe out a year of income in the two-year Treasury note.
"This is nearly double the cushion on offer two years ago – and far larger than the thin insulation provided by longer-term bonds today."
Safe and boring?
But with rising inflation and interest rates set to be hiked and possibly at a faster pace by the Fed this year, convincing investors of the opportunities in sovereign debt may be the biggest challenge.
