Falling bond yields: What\'s next for investors?

Recently, the one-year Treasury-Bill (T-Bill) and three-year Pakistan Investment Bond (PIB) rates have been trading near 13% and 12%, respectively. Quantitative analysis shows that the fall in yields during this fiscal year is due to increased demand for fixed-income securities, leading to capital appreciation. Investors have enjoyed returns beyond the agreed coupon rates, with some realising annualised returns exceeding 20%, depending on the investment horizon. But that's the past—what should investors do now? A common pitch for naïve investors would be: "Sir, fixed income returns in Pakistan are already high. Look at the past two years' returns. Your money is safe, yielding more than long-term currency depreciation. So, why take risks?" However, what many advisors may not disclose is that future returns on long-term income funds, particularly those with PIBs, could drop to single digits starting next month.