Portfolio Management Outlook: Staying Focused Amid Geopolitical Uncertainty

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

Despite geopolitical volatility and the evolving energy supply shock caused by the conflict in the Middle East, our macroeconomic view remains intact for now. Our baseline U.S. outlook calls for solid real gross domestic product (GDP) growth near 2 percent this year, supported by artificial intelligence-driven (AI) business investment and consumer spending, with tax cuts helping offset the drag from higher energy prices. We expect core inflation to remain elevated in the first quarter before gradually decelerating as tariffs mark their anniversary, the oil shock fades, and housing and wage pressures moderate, enabling the Federal Reserve (Fed) to cut rates twice in the second half of the year. Still, persistently high oil prices remain a key risk to our economic outlook, eroding disposable income and consumer sentiment.

Credit and Risk Positioning

Our investment approach is guided by key market dynamics: All-in yields remain attractive and the Fed will likely resume easing later this year; credit spreads have widened modestly from historically tight levels, providing some additional opportunities; and credit fundamentals are strong but diverging among industries more exposed to tariffs, technology shifts and interest rates.

In this environment, our credit positioning remains primarily defensive, prioritizing income generation and diversification. We are neutral to our long-term credit beta targets and have overlayed some hedges in this period of heightened volatility. We prefer high carry instruments within defensive sectors, including senior ABS and non-Agency RMBS. Within corporate credit, our high grade strategies still lean long financials, and within high yield strategies we remain up in quality and selective within industries that are experiencing volatility in earnings and in longer-term business prospects. Across all strategies, we want to emphasize having some dry powder and room in our risk budgeting to withstand a range of outcomes and take advantage of dislocations when they occur.

Duration and Interest Rate Views

Since the onset of the Iran conflict, the Treasury yield curve has flattened as the front end moved higher, while upward pressure from growing fiscal deficits keeps long rates elevated and the 10-year Treasury yield rangebound between 3.75 and 4.5 percent. We remain focused on the belly of the curve, adding exposure in the 2- to 5-year segment, where starting yields near 4 percent are attractive, while tactically rotating in and out of the 10-year tenor as it moves within its range. We continue to favor Treasury Inflation-Protected Securities (TIPS), though we took some profits following the move after the Iran war began. Divergent global central bank policies create additional opportunities in sovereign markets outside the United States. As the Fed balances the potential duration of the oil shock against a vulnerable labor market and downside economic risks, higher quality credit offers attractive yields, potential price appreciation, and portfolio diversification. Still, amid heightened uncertainty and diverging credit performance, 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%.

Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.

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.

GPIM  5384055