IFA Magazine’s Sue Whitbread asks leading fixed income managers to share their current thinking on fixed income investing.
We explore where experts are seeing the strongest opportunities at the moment, the risks they think advisers may be underestimating, and how they are positioning their fixed income portfolios as inflation, geopolitical uncertainty and market dispersion reshape the asset class.
Fixed income investors are entering a period where familiar playbooks may no longer apply. The Middle East conflict represents a major global energy supply shock that, depending on the duration, could end up generating stagflation for the global economy. In this ‘Manager Perspectives’ feature, we bring together views from leading global bond investors at Vanguard, BNY Investments, T. Rowe Price, Artemis and PIMCO, to examine how they see the opportunity set within fixed income evolving and what it means for portfolio construction. After years defined first by ultra-low interest rates and then by a sharp repricing, markets are now being shaped by a more complex mix of heightened inflation risks, geopolitical shocks and concerns over the possibilities of central banks hiking rates.
For advisers and wealth managers, this shift matters. Bond yields remain elevated relative to levels over the past decade, restoring fixed income’s role as a meaningful source of income. Yet the drivers of return are changing. Duration is no longer a reliable diversifier, inflation risks are proving more structural than cyclical, and dispersion across regions and sectors is opening up new avenues for active positioning. In this environment, understanding how leading managers are working within these dynamics is critical.
We asked our fixed income specialists where they see the most compelling opportunities today, what risks or blind spots they think advisers should be aware of, and how they are positioning their fixed income portfolios over the next six to twelve months, bearing those factors in mind. Their responses, shown below, point to a more active and nuanced era for fixed income, where flexibility, selectivity and a willingness to move beyond traditional approaches will be key.
Opportunity set: income, inflation and global dispersion
The first, and perhaps the most important, perspective we were keen to extract from our fixed income experts was to find out what the most compelling opportunities are in fixed income investing at the moment.
Ales Koutney, one of the lead portfolio managers of the Vanguard Global Core Bond Fund and Global Strategic Bond Fund, points to inflation-driven dislocations as a key source of opportunity, particularly across rates and defensive areas of credit. He highlights how geopolitical dynamics are feeding directly into portfolio positioning, noting, “We see opportunities amidst inflation. We were short Japan pre-crisis, and our conviction in further hikes has grown, given the level of exposure to oil imports from the Strait of Hormuz. Additionally, post the announcement of the two-week ceasefire, we also added some inflation protection.” Alongside this, Koutney emphasises: “We are selective in high-quality corporate credit. We particularly like defensive sectors such as UK utilities, where revenues are resilient even if growth dips.”
Adam Whiteley, portfolio manager at Insight Investment, a BNY company, sees a compelling income opportunity in today’s market backdrop despite tight spreads, driven by historically elevated yields. “While credit spreads remain relatively tight, we note that yields are high relative to the past 25 years, making the current environment attractive for capturing income while carefully managing risk.” This has informed a more defensive positioning approach: “Our approach has therefore been to stay invested, build resilience and keep duration short. As a result of this, our portfolios are generally positioned more at the front end of the curve than usual, prioritising yield with lower sensitivity to rate movements.” He also highlights that to enhance resilience, “We are taking option positions designed to perform across different market environments. In addition, we are selectively moving beyond benchmark investment grade credit, deploying capital into high yield, emerging markets and asset-backed securities where we see more attractive risk-adjusted opportunities.”
Arif Husain, head of global fixed income at T. Rowe Price, highlights inflation-linked securities as particularly attractive, arguing that markets are not fully reflecting near-term inflation pressures. Husain said: “Inflation-linked securities stand out as particularly attractive at the moment. With break-evens hardly changed, despite CPI prints likely to be high in the coming months, they look cheap.” He adds that carry remains compelling even without a shift in expectations: “Even if we see no change in inflation expectations, the carry on these securities is incredibly attractive given the jump in headline inflation.” More broadly, he points to significant global dispersion: “The global rates market is offering some of the broadest cross-market relative value and dispersion we have seen since before the global financial crisis,” he said.
Also focusing on that dispersion in their latest Cyclical Outlook, “Tiffany Wilding, economist, and Andrew Balls, chief investment officer for global fixed income at PIMCO, argue that the current environment is defined by heightened dispersion and elevated starting yields, which together improve the case for high-quality fixed income. They highlight that bonds are increasingly able to act as both income generators and portfolio stabilisers, particularly given more attractive yield buffers than in previous cycles. At the same time, they emphasise that divergence across regions and asset classes is creating more opportunities for active management, particularly in liquid public markets where pricing is more transparent and flexible. Their perspective reinforces the idea that resilience and quality are becoming central to the use of fixed income as part of overall portfolio construction in this more uncertain macro environment.
Jack Holmes, co-manager of the Artemis Short Dated Global High Yield Bond Fund, sees a particularly strong opportunity in short-dated high yield, where volatility can create repeated entry points. “Yields in short-dated high yield are moving higher, making them look compelling to me. In volatile times, you always get opportunities from sell-offs in high yield.” He emphasises the speed of recovery once stress subsides: “When the immediate stress disappears, high yield tends to rally very quickly, much faster than equities. That means these opportunities do not tend to last long.” For more cautious retail investors, Holmes said, “I would say buy a short-dated high-yield bond fund and don’t worry about timing. The yields on a risk-return basis look very attractive.”
He also suggests that standard yield metrics may understate return potential: “Market yield figures, which are quoted on a yield to worst basis, are likely understating the true return profile of a portfolio,” he said.
Risks: inflation risks underappreciated, policy error and liquidity blind spots
The risk/reward trade-off is always front of mind for investors. So, following on from those opportunities, where do experts believe that the biggest risks or blind spots are that they think advisers should be aware of when it comes to fixed income investments in 2026?
Inflation remains underappreciated, according to Koutney at Vanguard, particularly given the lasting impact of energy market disruption, saying: “Even if the conflict in the Middle East de-escalates, energy scars mean the damage to oil supply chains and logistics is likely to persist well beyond the initial shock.” He adds that inflation pressures are broad-based: “Oil feeds far more than transport, it runs through fertilisers, clothing, food and manufacturing. These supply disruptions can re‑ignite price pressures and crucially, physical oil markets are already signalling tightness, with physical cargo (‘dated brent’) pricing above futures.”
Whiteley at BNY Investments cautions against treating fixed income purely as a diversification tool in portfolios. “In an environment where duration is not uniformly rewarded, and spreads appear tight, we believe allocations to fixed income solely being used as a diversifier pose a risk.” Instead, he argues: “Being purposeful and proactive in allocations will, in our view, lead to superior outcomes. Indeed, by moving beyond traditional benchmark-driven allocations and adopting a more flexible outcome-oriented approach, we believe investors can continue to access attractive income, maintain liquidity and manage risk effectively across the cycle.”
Policy error is identified by Husain at T. Rowe Price as the dominant risk for bond markets at the moment. “Central bank policy error is the risk I would flag most strongly,” he says, noting that uneven responses to inflation shocks could create significant divergence in outcomes. “Some will likely hike when they should not, stifling their economies, while others may look through the spike entirely, allowing inflation expectations to drift higher.” He also highlights market structure risks: “Crowded positioning and low liquidity can combine to drive outsized moves in rates markets that have little to do with fundamentals.” Importantly, he warns that traditional diversification assumptions may no longer hold: “In an environment where inflation sits above 3%, correlations between rates and risk can turn positive, challenging traditional portfolio construction.”
On the subject of risk, Holmes at Artemis challenges lingering perceptions of high-yield bond risk. “I think most advisers and wealth managers understand high yield much better these days and recognise its value as a core component in a balanced portfolio. But there are still some who think of it as high-risk and ‘junk’,” he said.
Arguing how things have changed, he says: “The high-yield bond market has significantly improved in quality in recent years. The percentage of the market rated CCC is less than half what it was 15 years ago. The percentage of the market rated BB is now 60%, having been 40% 15 years ago. This is because the garbage issuance that would have come to the high-yield market instead went to private credit. Many of the problem credits have self-selected into that market, and in doing so, they’ve avoided polluting the high-yield market.”
In terms of countering some of the risks, Holmes says, “Of course, with active management, you can further mitigate risk. The default rate on our Short-Dated Global High Yield Bond Fund since inception has been a quarter of the level of the broader high-yield market.”
Wilding and Balls at PIMCO emphasise that the macro backdrop is increasingly fragile, with geopolitical shocks amplifying stagflationary risks. They highlight that energy supply disruptions are simultaneously raising inflation and weighing on growth, creating a difficult environment for policymakers. Central banks, they argue, face constrained policy flexibility, increasing the risk of missteps and reactive tightening or easing cycles. They also caution that liquidity risk is becoming more important, particularly in less transparent segments of credit markets, reinforcing the need for greater scrutiny of underlying exposures and structures.
Positioning: flexibility, liquidity and active allocation
Given the opportunities and risks that our experts have highlighted, how are they positioning their portfolios strategically over the next 6–12 months in light of this?
The importance of maintaining flexibility as market conditions evolve is high on the list for Koutney at Vanguard. “Flexibility and liquidity are key,” he says, noting that positioning must balance long-term themes with shorter-term shifts. “While we remain constructive on fixed income overall, supported by higher yields and market repricing to generally more hawkish policy paths, positioning needs to balance long‑term themes with short‑term shifts. We have actively adjusted exposure, opening, closing, or reshaping positions in areas such as the European periphery and the UK, while maintaining sufficient liquidity to respond to opportunities as they emerge,” he explains.
Whiteley at BNY Investments emphasises that from a valuation perspective, “We believe fixed income continues to offer attractive risk/return potential even in a low spread and duration-challenged environment. We are adopting several strategies here.”
“In this environment, shortening duration allows investors to harvest yield while materially reducing sensitivity to rate shocks or any sharp risk-off episodes.” He adds that: “By adjusting duration and credit exposure dynamically, a fixed income strategy can seek to avoid unrewarded risk and exploit relative value opportunities across rates and credit.” Structured credit also plays a role, as Whiteley highlights, saying: “High quality asset-backed securities can offer an attractive spread pick-up versus government bonds and investment grade credit, with lower duration and strong structural protections.”
Husain at T. Rowe Price outlines a three-pillar approach to positioning. First, inflation protection remains central: “Inflation-linked securities look cheap given where break-evens currently sit.” Second, he emphasises relative value in rates: “The best opportunities now lie in cross-market relative value positions rather than simply calling the direction of yields.” Third, he highlights currency markets as a source of volatility-driven alpha: “We expect heightened volatility to generate alpha opportunities, and we believe the weaker US dollar trend has further to run.”
Wilding and Balls at PIMCO emphasise a portfolio construction approach built around resilience, liquidity and global diversification. They argue that higher starting yields improve the case for high-quality bonds as both income generators and portfolio stabilisers. At the same time, they highlight the importance of treating liquidity as a strategic asset, particularly as dislocations emerge across public and private credit markets. Their approach favours high-quality, transparent exposures in liquid markets, alongside selective global diversification and inflation hedging tools to improve portfolio robustness across scenarios.
Holmes at Artemis continues to focus on a disciplined reinvestment approach within short-dated high yield. “We very strongly believe that the beauty of short-dated high yield is that it provides a mechanical, income-driven return,” he says. He adds that reinvestment is central to the strategy: “We are constantly reinvesting this back into other short-dated bonds to generate a pipeline of attractive income.” Importantly, volatility is treated as an opportunity rather than a threat: “If yields widen, it just means we get to do this at more attractive valuations.”
Conclusion
Taken together, these perspectives suggest that fixed income is entering a more active and nuanced phase. The combination of higher yields, significant inflation uncertainty and increasing dispersion is creating a richer opportunity set, but one that demands greater selectivity and agility. For advisers and wealth managers, the message is clear. Fixed income can play a central role in client portfolios, but only with a more deliberate and forward-looking approach to allocation and manager selection.
This is a theme which many more leading fixed income investment managers will pick up over the remaining pages of this Fixed Income Insights publication. From here, we will move on to asking leading experts to share their insights on some of the key themes front and centre in fixed income markets for 2026, including dispersion, liquidity, inflation and the evolving role of rates and credit as part of an overall diversified investment portfolio.
This feature was part of our 2026 Fixed Income Insights. For deeper analysis on bond markets and rates strategy for advisers, explore IFA Magazine’s latest Fixed Income Insights publication.
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