Portfolio Management Outlook: Positioned for a Bond-Friendly Environment

This Portfolio Management Outlook is excerpted from the First Quarter 2026 Fixed-Income Sector Views.

The economic backdrop for portfolio positioning is broadly supportive for fixed income, with solid growth and moderating inflation. Our baseline U.S. economic outlook projects an economy closer to equilibrium by the end of 2026, supported by strong productivity growth, artificial intelligence (AI) business investment, and some fiscal stimulus early in the year. We expect sticky core inflation will ease in the second half of the year as tariff pass through fades and rent and wage pressures cool. Lower inflation should allow the Federal Reserve (Fed) to resume rate cuts later in the year to a neutral rate of 3 percent, helping ease pressure on interest sensitive industries.

Credit and Risk Positioning

Our investment approach is guided by key market dynamics: Real yields are very attractive; the Fed is easing; credit spreads are near historic tights with little differentiation between high and low quality securities; investor demand for credit is robust, absorbing heavy issuance; and corporate fundamentals are strong, with divergence among industries more vulnerable to tariffs and interest rates.

In this environment, our positioning remains primarily defensive, prioritizing income generation and diversification. We prefer higher quality credit, particularly structured credit, where spreads remain wider relative to fundamental risk, and defensive assets like infrastructure and energy, which offer some inflation protection and downside resilience. We favor high carry instruments, including non-Agency residential mortgage-backed securities (RMBS), senior collateralized loan obligations (CLO) tranches, and commercial assetbacked securities (ABS). In corporate credit, we prefer investment grade financials, where supply is expected to remain stable, as well as select industrial and utility credits. We are maintaining liquidity to take advantage of market overshoots when they occur.

Duration and Interest Rate Views

The Treasury yield curve has steepened dramatically and, if expectations for the Fed’s terminal rate declines further, we would expect more steepening, as upward pressure from growing fiscal deficits keeps long rates elevated, and the 10-year Treasury yield remains rangebound between 3.75 and 4.75 percent. In this steeper curve environment, we are positioning a bit further out the curve, including in longer maturity Treasury Inflation-Protected Securities (TIPS), enabling roll down—or price gains as time to maturity shrinks and yields decline—to become an additional driver of return. We are also taking positions in short maturities and tactically rotating in and out of the 10-year tenor as it moves within its range. Divergent global central bank policies create additional opportunities in sovereign markets outside the United States.

As the Fed balances sticky inflation against a softening labor market, and downside risks to a stabilizing economy remain prevalent, higher quality credit offers attractive real yields, potential price appreciation, and portfolio diversification. Still, with credit performance diverging across industries and spreads remaining tight, active selection and risk management are critical.

—By Anne Walsh, Steve Brown, Adam Bloch, and Evan Serdensky

Important Notices and Disclosures

One basis point is equal to 0.01%.

S&P bond ratings are measured on a scale that ranges from AAA (highest) to D (lowest). Bonds rated BBB- and above are considered investment-grade while bonds rated BB+ and below are considered speculative grade.

This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the authors, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.

Investing involves risk, including the possible loss of principal. In general, the value of a fixed-income security falls when interest rates rise and rises when interest rates fall. Longer term bonds are more sensitive to interest rate changes and subject to greater volatility than those with shorter maturities. During periods of declining rates, the interest rates on floating rate securities generally reset downward and their value is unlikely to rise to the same extent as comparable fixed rate securities. High yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility. Investors in asset-backed securities, including mortgage-backed securities and collateralized loan obligations (“CLOs”), generally receive payments that are part interest and part return of principal. These payments may vary based on the rate loans are repaid. Some asset-backed securities may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity and valuation risk. CLOs bear similar risks to investing in loans directly, such as credit, interest rate, counterparty, prepayment, liquidity, and valuation risks. Loans are often below investment grade, may be unrated, and typically offer a fixed or floating interest rate.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Wealth Solutions, LLC, Guggenheim Private Investments, LLC, Guggenheim Investments Loan Advisors, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, and GS GAMMA Advisors, LLC. Not FDIC insured. Not bank guaranteed. May lose value.

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