Fixed Income in 2026: Not Your Father's Bond Market

The Duration Question

After years of near-zero rates followed by aggressive tightening, fixed income allocators face a genuine strategic question: where to position on the curve. The answer depends on your view of terminal rates, inflation expectations, and the probability of a policy error.

We believe the current curve shape — discussed in our yield curve analysis — favors an intermediate duration positioning with selective exposure to credit. The carry in investment-grade corporate bonds is historically attractive, and default rates remain well below long-term averages.

The Credit Opportunity

Investment-grade spreads have compressed, but high-yield spreads remain elevated relative to the default outlook. This divergence creates opportunity in the BB-rated segment — credits that are too risky for investment-grade mandates but too solid for the high-yield premium they offer.

Selective credit analysis — not index-level allocation — is where the opportunity lives in 2026 fixed income.