The unprecedented levels of uncertainty we have right now might be seen by some as a headwind for fixed income investing. However, James Turner, Head of Global Fixed Income, EMEA at BlackRock, is seeing plenty of positives in today’s market as he highlights why the stability and predictability of this asset class is so valuable in such times.
Over the past year, investors have had no shortage of noise to contend with. Geopolitical tensions have resurfaced, energy prices remain volatile, and the rapid acceleration of artificial intelligence continues to reshape markets. At the same time, central banks are navigating a difficult balancing act between inflation and growth.
For investors, this creates a complex environment. Uncertainty is elevated, outcomes are wider, and traditional assumptions are being challenged. Importantly, we do not see this dissipating in the near term.
But beneath that noise, one message is becoming increasingly clear: fixed income is doing what it is designed to do. It can provide steady income through regular interest payments which build over time, with particularly attractive opportunities across short-to-medium term bonds. Combined with the return of capital at a set date, this can help anchor portfolios during periods of volatility.
Income is doing the heavy lifting
We are in what can be described as a “golden age” for fixed income. This is not because of interest rate movements or capital gains, but because of income.
For the first time in more than a decade, investors can build portfolios with attractive yields and higher quality. Today, nearly 60% of bonds are yielding above 4%. This shift has restored fixed income as a meaningful source of income, offering return potential not seen for much of the past decade.
For investors, this materially changes the role fixed income can play in portfolios. Over a three-to-five-year horizon, income is likely to be a major driver of total return, while also providing a cushion against periods of volatility.
Why this environment favours fixed income
The resilience of income is not happening in isolation. It is supported by several structural shifts.
For years, investors were often compelled to sacrifice credit quality, liquidity, or both to generate income. Today, higher yields have changed that dynamic. This means attractive income can be achieved from liquid fixed income without reaching for yield from low quality credit or moving too far along the duration curve.
Today’s opportunity is also being shaped by a more volatile macro environment. Recent geopolitical developments, including tensions in the Middle East, have added to that uncertainty.
Markets initially focused on inflation, but less so on the potential drag on growth. A softer growth backdrop and weakening labour markets could ultimately counterbalance inflation pressures over time. In this context, current expectations for central banks to hike interest rates may prove somewhat elevated, creating an attractive opportunity to lock in income at today’s levels, particularly in short to medium-term bonds.
Taken together, this reinforces an important point: staying invested matters more than timing markets. The risk for many investors is not volatility but missing out on compounding income.
The role of income-focused strategies
This is where income-focused approaches become particularly relevant. Increasingly, investors are moving away from traditional aggregate exposures, often concentrated in government bonds and duration risk, toward more flexible strategies that can access a broader global fixed income opportunity set.
Rather than relying on interest rate movements, these approaches seek to generate consistent and diversified income by allocating across corporate credit, securitised assets and other higher yielding segments – including high yield and emerging markets.
Many developed market governments are contending with budget deficits and increased borrowing, while corporates have generally been reducing debt over the past decade, resulting in more resilient balance sheets.
As result, credit markets have been less volatile than longer-dated government bonds in recent years – a dynamic we expect to continue.
Flexibility is key. By investing across regions, sectors and credit qualities, and without being tightly constrained by a benchmark, investors can adapt to changing market conditions and access opportunities as they arise.
Where we see risks: dispersion, not direction
One defining feature of the current market is the growing differentiation across companies and sectors.
Artificial intelligence is accelerating this dynamic. Companies directly exposed to AI investment and infrastructure are benefiting from strong capital flows and earnings growth -while others face margin pressure.
This is creating a market where outcomes are increasingly driven by company fundamentals rather than broad market direction. In fixed income, this reinforces the importance of credit selection, with high return potential being increasingly driven at the issuer level.
That does not mean it is risk-free. Credit spreads remain relatively tight,
and the margin for error is lower.
To generate resilient returns and look through market narratives, focusing on credit research and consistent income is paramount.
Looking ahead: focusing on what matters
For advisers and their clients, the implications are clear.
Over a three-to-five-year horizon, the key risks are missing the opportunity to lock in attractive yields.
Fixed income can provide predictability of returns, diversification and a consistent income stream. At a time when markets are increasingly driven by uncertainty, that stability is valuable.
The opportunity today is not about predicting the next move in rates or markets. It is about focusing on what fixed income is designed to do. And right now, it is doing exactly that.
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.
[1] BlackRock Investment Institute, with data from LSEG Datastream, data as at 31 January 2026
