Why the 'Great Rotation" from bonds to equities never took off The US economy is on track for low single-digit growth next year, with the housing market the one real bright spot in an otherwise sluggish rebound. Even in the UK, where George Osborne last week enjoyed telling Parliament that Britain was growing faster than its developed-country counterparts, the recent improvement looks a lot like a good, old-fashioned, and unsustainable British debt boom. The eurozone is not out of the woods. This means that monetary policy normalisation is going to be slower and more measured than might have seemed likely 12 months ago. The tolerance of central banks for rising bond yields was tested in the summer after Ben Bernanke floated the idea of tapering monetary stimulus. The rapid rise of Treasury yields from around 1.5pc to 3pc in a matter of weeks was not what they hoped to see and a policy rethink has resulted. The messaging from central banks is a great deal more nuanced now, with a much clearer articulation of the difference between a slowing of bond purchases and an actual increase in interest rates. With growth pegged at low rates and inflation pressures evaporating in most places, the message is getting through that rate rises remain some years away. This means that the search for yield isn't going away any time soon. The spread between investment-grade and high-yield bonds and the government bonds off which they are priced remains wide. It is enough to compensate investors for both the prospect of modestly rising rates and for credit risk - the danger of default specific to a particular bond that explains the level of income an investor requires. It is the compounded growth of this income that provides the lion's share of returns over time. A particularly interesting part of the fixed income universe at the moment is European high-yield bonds, where income is high relative to a low level of corporate failures and the outlook for interest-rate rises is unthreatening. A slow-growth environment is arguably the best of all scenarios for high-yield bonds because it allows policy to remain easy but defaults are rare. Another reason the Rotation didn't really show up this year is the fact that for many investors, fixed income remains a key way for them to match their obligations. US pension funds have increased their allocations to bonds over the past three years, with an eye on the 80m or so baby boomers who are getting ready to retire. This is a big cohort of investors for whom predictable return of capital is just as important as an attractive return on capital. Now, I've not suddenly become a cheerleader for bonds. There are a number of risks looming in 2014, not least of which is the fact that even super-dove Janet Yellen will tighten at some point. Another background risk for fixed income is policy error, in particular that the trade-off between inflation and employment is hard to manage. Emerging market debt, which has grown in popularity as a diversifier of risk within a bond portfolio, looked a less clever option in the summer as liquidity problems and a sensitivity to developed-market monetary policy became clear. The Great Rotation was a great headline, in part because it captured a simple truth; that bonds generally look less attractive than equities at the moment. What has become clear this year and will continue to be so in 2014, however, is that the choice between them is not an either-or decision. Tom Stevenson is an investment director at Fidelity Worldwide Investment. The views expressed are his own. He tweets at @tomstevenson63