The global bond market is undergoing significant changes, with continuously rising bond yields bringing fixed-income assets, which have been dormant for many years, back into the spotlight for investors. Driven by factors such as high inflation and government debt pressure, yields on US and Canadian government bonds have risen significantly, leading to a shift in market investment logic. Many institutional investment experts point out that with interest rates returning to levels not seen in many years, investors need to update their asset allocation strategies, and bonds have once again become an indispensable choice in investment portfolios. A Shift in the Bond Market: Fixed Income Assets Regain Investment Value After a prolonged period of dismal returns, investors are rediscovering investment value in the fixed income market. Driven by concerns over high inflation and the scale of government debt, bond yields have continued to rise in recent months. This week, the yield on the 10-year US Treasury note broke through 5%, and the yield on the 10-year Canadian government bond approached 4%. The continuously rising bond yields and interest rates mean that individual investors heavily invested in stocks may need to reassess the allocation of fixed-income assets in their portfolios. Sebastian McMahon, chief economist at IA Financial Group in Canada, commented on interest rates in the US and Canada, stating that current interest rates have returned to a normal range consistent with economic fundamentals, but such interest rate levels have not been seen for 20 to 25 years. This represents a fundamental shift in the investment landscape for investors. McMahon acknowledged that many clients still have reservations about allocating to bonds because fixed-income products have caused investors losses for a long time. In the 2010s, bond yields were meager, and market demand for fixed-income products was sluggish. However, with changes in the bond market environment, the once-unpopular classic 60/40 asset allocation model—a 60% equity and 40% fixed-income portfolio—has regained its appeal. Governments or large corporations issue bonds when they need financing, promising to repay the principal and pay agreed-upon interest at maturity. If factors such as inflation weaken the attractiveness of bonds, bond market prices will fall, but the coupon rate remains unchanged, allowing new investors to obtain higher yields at lower purchase costs. The era of zero interest rates is unlikely to return, and fixed-income ETFs continue to see inflows. Alex Lee, Senior Fixed-Income Portfolio Manager at Vanguard Investments Canada, believes that the current market has fully priced in multiple rounds of interest rate hikes, and the environment for bond investors is more favorable than before. According to Vanguard's forecast, the Bank of Canada will implement one interest rate hike before the end of this year and another before the end of next year; while the Federal Reserve is expected to conduct an additional interest rate hike in 2026. Li made a core judgment that the global market will not return to the zero-interest-rate environment of the past. Interest rates have completed their normalization adjustment, and fixed-income assets can now provide investors with stable interest income. This contrasts sharply with the past low-yield environment, where the returns on fixed-income assets could not even keep up with inflation, and the purchasing power of funds continued to shrink. Fund flow data also confirms this shift in market preferences, with the size of fixed-income ETFs continuing to grow. Li mentioned that, looking at ETF fund flows this year, the net inflow is about to exceed last year's level, and since 2022, the net inflow of funds into fixed-income ETFs has been consistently rising. More and more ordinary investors are using ETFs to invest in the bond market. These products have low entry barriers and good liquidity, making them the preferred channel for retail investors to allocate fixed income. Institutional funds and individual investors are simultaneously increasing their bond allocations, and the continuous inflow of funds will also support the medium- to long-term performance of the bond market to some extent. Bond valuations are superior, and high-quality corporate bonds have investment value. Hadiza Jatau, Vice President and Portfolio Manager of Global Bonds at Mackenzie Investments, believes that a series of changes in the bond market environment have made fixed-income products "extremely attractive." She stated that even simply buying a simple US or Canadian credit bond ETF would likely yield investors higher returns than stock dividend yields. The current valuation gap between the two asset classes is also significant. In her view, stock valuations are high, but bonds are not expensive, and are even approaching oversold territory. Compared to equities, bonds have a better short-term outlook. Inflationary pressures from Middle East geopolitical risks are also continuously pushing up bond yields, while some fixed-income products can provide investors with protection against rising inflation. She is also optimistic about investment opportunities in corporate bonds, especially in the Canadian domestic market. Canada has a large number of high-quality banks and utilities—companies subject to strict regulation. Investors can allocate to these corporate bonds through credit funds, not only capturing higher coupon yields but also obtaining the credit premium that corporate bonds offer compared to government bonds. These companies have strong operational stability and very low default risk. In an environment of increased stock market volatility, high-quality corporate bonds can provide stable cash flow and diversify portfolio volatility risk associated with relying solely on equity assets.