In a landscape that has been dominated by uncertainty, fixed income has shown itself to be an indispensable component of a well-diversified portfolio. Bonds have been a stabilizer to portfolio performance this year, propelled by higher starting yields. Higher income returns have helped provide a cushion against recent market volatility, keeping bond returns steady amid larger swings in equities.
Key takeaways
Performance recap
Bonds have continued to flex the power of income. They not only provided stability during the tariff-related volatility but also yielded solid returns. In the first half of 2025, broad fixed income indexes returned between 4% and 7.25%, largely driven by income from higher coupons.
The big picture
Downside risks to the U.S. and global economies remain, even as the most severe policy scenarios appear to have been avoided. The disruption to U.S. exceptionalism demonstrates the need for diversification and to have a global reach when looking for opportunities. Across sectors, fixed income still offers one of the most attractive entry points to add income in decades.
Our approach
While taxable credit spreads have reverted to early 2025 levels, all-in yields near 5% or higher should continue to draw investor interest and serve as a technical tailwind. We continue to seek the best opportunities globally, remain selective in lower-quality bonds, and see value in the belly of the yield curve as a hedge to our credit exposure. In municipals, we favor high-quality credit, with historically attractive yields relative to U.S. Treasuries on the long end.
Notes
- All investing is subject to risk, including the possible loss of the money you invest.
- Investments in bonds are subject to interest rate, credit, and inflation risk.
- Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund’s trading or through your own redemption of shares. For some investors, a portion of the fund’s income may be subject to state and local taxes, as well as the federal Alternative Minimum Tax.