Perspectives : Investment | July 24, 2026

Active Fixed Income Perspectives Q3 2026: Finding higher ground

Higher yields, resilient economic growth, and shifting Fed expectations are reshaping the fixed income landscape. Inflation, interest rates, credit markets, and geopolitical developments continue to influence bond markets. Discover opportunities across taxable and municipal bonds, potential sources of income and diversification, and why active management remains important in today’s evolving market environment.

Read report

Key takeaways

Performance recap

Front-end yields rose and the yield curve flattened over the quarter as markets swung from pricing cuts to potential hikes. Strong economic growth and above-target inflation pushed up yields, while the Iran conflict added a temporary stagflationary risk premium that faded late in the quarter. Credit markets remained stable, supported by solid fundamentals, strong demand, and smooth absorption of elevated issuance. Municipal bonds performed well as a historically steep curve boosted demand and drove yields lower.

The big picture

We remain constructive on the fixed income outlook. While inflation remains above the Fed’s target and geopolitical developments could create periods of volatility, higher yields provide stronger income potential and a greater cushion against uncertainty.

In taxable bonds, we see compelling opportunities in the front end and belly of the curve, where investors can benefit from income and ballast. Munis continue to offer better value at the long end of the curve. Overall, fixed income remains well positioned to deliver income and diversification benefits to portfolios.

Our approach

Income remains the anchor for returns, but active management will be critical in determining where that income is best sourced.

We have moved from a long to a neutral duration view. In credit, conditions remain favorable, but we are maintaining a selective approach. In municipals, we are focused on extracting value from convexity management and a steep curve.

Related items

Active fixed income

Notes

Past performance is no guarantee of future results.

All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss.

Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.

Municipal bond fund distributions, including any market discount recognized by the fund's investments, may be taxable as ordinary income or capital gains. A majority of the income dividends that you receive from the fund are expected to be exempt from federal income taxes. However, a portion of the fund’s distributions may be subject to federal, state, or local income taxes or the federal alternative minimum tax. You should consult your own tax advisor with respect to any particular U.S. or non-U.S. tax consequences of your investment in the fund.