Finding higher ground in active fixed income
Higher yields offer attractive income potential and a greater cushion against volatility, creating opportunities for active investors.
Key takeaways
- Higher yields have enhanced income potential and provided a greater buffer against market uncertainty.
- Policy, inflation and geopolitical risks continue to drive market dispersion, creating opportunities for active security selection.
- Strong corporate fundamentals and record debt issuance have expanded opportunities across investment-grade credit markets.
Big picture: Yields are higher
While inflation remains above target in the US and Europe, and geopolitical developments could create periods of volatility, during the second quarter higher yields provided stronger income potential and a greater cushion against uncertainty.
- Front-end yields rose and the yield curve flattened over the quarter. Credit markets remained stable, supported by solid fundamentals, strong demand and smooth absorption of elevated issuance.
- Higher yields provide both income and a larger cushion against uncertainty. That keeps us constructive on fixed income even as markets navigate policy and inflation risks.
From geopolitical risk to policy uncertainty
Dispersion in rates and credit markets can create both opportunities and risks. However, overall, fixed income remains well positioned to deliver income and diversification benefits to portfolios.
- Geopolitics remain a risk, but the dominant driver of markets has shifted towards domestic drivers of inflation, growth and central bank policy.
- In the US, markets are increasingly focused on whether the current mix of resilient growth and persistent inflation requires tighter policy. On a relative basis, Europe faces a softer growth outlook and rising inflation.
Credit: AI is reshaping issuance
Investment-grade companies, in particular, are in sound shape. Record profits and disciplined balance sheet management are supported by a sturdy labour market and continued consumer strength.
- Issuance over the first half of the year is at a record pace, exceeding $1.2 trillion, with roughly a quarter tied to AI-related investment.
- Tech giants Meta, Google, Microsoft, Amazon, Oracle and SpaceX have become frequent issuers as they fund the AI infrastructure buildout. Investment-grade hyperscaler issuance accounts for 13% of corporate bond market issuance year-to-date and now represents 4% of the investment-grade corporate credit market. This quality supply expands the opportunity set, but selection still matters.
AI hyperscaler corporate debt issuance
Source: Bloomberg, as at 30 June 2026.
In this environment, security selection matters. For investors, the opportunity lies not in broad beta exposure, but in careful positioning across rates and credit, with an emphasis on quality and disciplined risk management.
Go deeper with our latest analysis
Explore the latest analysis, views and positioning across rates and credit markets from our team of global fixed income experts in Active Fixed Income Perspectives: Finding higher ground.
Inside the report:
- In-depth analysis of key drivers in global bond markets in Q2
- Key opportunities and risks across rates and credit
- Our outlooks and monetary policy expectations
- Portfolio positioning and active strategy considerations.
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