Unique circumstances after the Global Financial Crisis helped keep Treasury yields below 3 percent for almost a decade. Below-target inflation, combined with a sluggish economic recovery, led the Federal Reserve (Fed) to maintain a prolonged period of near-zero policy rates and quantitative easing (QE).

Since the pandemic, however, higher quality fixed-income yields have returned to historically attractive levels, creating a compelling opportunity to enhance portfolio income. Yields may fluctuate with the business cycle but seem unlikely to return to the low levels of the previous decade. Current levels reflect more normal expectations for long-term growth, supported by solid U.S. fundamentals. From a longer historical perspective, today’s yield levels appear more typical than those of the post-2008 period. Absent a significant shock, we expect them to remain in this higher range.

Source: Guggenheim Investments, Bloomberg. Data as of 6.30.2026. Index Legend: U.S. Treasurys: Bloomberg U.S. Treasury Index; Agency MBS: Bloomberg U.S. Mortgage Backed Securities Index; IG Corporates: Bloomberg U.S. Corporate Investment Grade Index; Agency Bonds: Bloomberg U.S. Government Bond Index; ABS: ICE BofA AA-BBB US Fixed Rate Asset Backed Index; Municipals: Bloomberg Municipal Bond Index; CMBS (Commercial Mortgage-Backed Securities): Bloomberg Investment Grade CMBS Index. Index information is provided for illustrative purposes only and is not meant to represent the performance of the strategy or its underlying investments. Past performance does not guarantee future results. Investing involves risk, and income is not guaranteed.

Even as overall yields offer higher income, investors relying solely on the Agg will miss the breadth of opportunities available in today’s fixed-income market. The Agg represents less than half of the investable fixed-income market, and strategies constrained by this benchmark overlook sectors that may provide attractive, stable excess returns and diversification for managers with the expertise to navigate the complexity.

Source: Guggenheim Investments, SIFMA, Bloomberg, JP Morgan Research, BofA Global Research, Mortgage Bankers Association. Data as of 12.31.2025.

Originally designed to represent the investment-grade fixed-income universe, the composition and risk profile of the Agg have lagged the evolution of the fixed-income landscape. The index includes only securities that are U.S. dollar-denominated, investment-grade rated (Baa3/BBB- or higher, using the middle rating of Moody’s, S&P, and Fitch), fixed rate, and taxable. The Agg also has minimum issue size requirements and excludes structured notes, which narrow its constituents to larger, less varied bonds.

These features limit inclusion at the expense of a broad range of fixed-income securities that can offer investors diversification and excess return potential. Key sectors underrepresented or entirely absent from the Agg include asset-backed securities (ABS), collateralized loan obligations (CLOs), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), high yield bonds, commercial real estate (CRE) loans, leveraged loans, and private debt, as well as any floating-rate or tax-exempt securities. Importantly, the Agg excludes Rule 144A securities that lack registration rights, known as “144A-for-life” issuance, limiting its coverage of a large and rapidly growing segment of the fixed-income market. This exclusion has become increasingly material, as a meaningful share of AI- and data-center-related debt issuance has come to market in this 144A-for-life format, placing it outside the Agg even when investment grade. While investors may prefer not to concentrate exposure in a single theme, the Agg’s eligibility rules effectively remove that choice, precluding index-tracking investors from participating in this segment altogether rather than allowing them to create selective exposure.

The sharp rise in the federal deficit since 2008 has reshaped the composition of the Agg by dramatically increasing the supply of U.S. Treasurys. Marketable U.S. Treasury securities have grown at an average annual rate of 10 percent since 2007, far outpacing the growth of nonfinancial corporate debt (5 percent) and financial institution debt (1 percent). As a result, the U.S. government has become the largest borrower in public bond markets. This shift has driven Treasurys’ share of the Agg from just 21 percent in 2007 to 46 percent today—concentrating duration and rate sensitivity in benchmark-constrained portfolios.

Source: Guggenheim Investments, Bloomberg. Data as of 6.30.2026.

As Treasury issuance continues to grow, so too will the Agg, and index-constrained or passive funds will become increasingly overexposed. The Congressional Budget Office (CBO) projects Treasury debt outstanding to rise from $30 trillion today to $56 trillion by 2035, growing as a share of gross domestic product (GDP) from 99 percent to 120 percent. Historically, Treasury debt has at times grown faster than CBO projections, suggesting upside risk to these estimates. Structural fiscal pressures—including rising interest costs, mandatory spending programs, and the difficulty of enacting durable fiscal reforms—suggest Treasury issuance could continue expanding for years to come.

Rate volatility may become structurally higher, presenting another challenge for passive, long-duration investments. More frequent supply disruptions, rising fiscal pressures, and growing global investment needs could contribute to more frequent economic shocks, episodic inflation, and more variable monetary policy than experienced in the unusually low and stable policy rate period from 2010–2019. This environment increasingly favors active management.

Source: Congressional Budget Office from an Update to the Budget and Economic Outlook: 2026 to 2036, published February 2026.

Fixed income plays an important role in the portfolios of long-term investors by providing steady income to match assets and liabilities, but the Agg alone may not provide the yield or diversification investors seek. Pension plan managers and other investors seeking to match long-term liabilities face challenges meeting high return requirements. The National Association of State Retirement Administrators reports that the median investment return assumption for national public pension plans is 7 percent, while life insurers typically target 5–6 percent for annuity products.

These targets are typically met with blended equity / bond portfolios, but they highlight the need for investors to achieve strong returns and broad diversification from fixed income. With its limited coverage of the fixed-income universe and concentration in government securities, the Agg is not meeting these requirements.

Source: Guggenheim Investments, Barclays, Bloomberg. Data as of 6.30.2026. Grey areas represent recession.

Core fixed-income investors with flexibility to deviate from the Agg may tilt heavily toward investment-grade corporate bonds. Within the Agg, exposure to corporates carries a structural bias toward lower quality credit, increasing downgrade risk during economic downturns. BBB-rated bonds have grown from less than 30 percent of the investment-grade universe in the late 1990s to 44 percent of the Bloomberg U.S. Corporate Bond Index today.

While current yields are attractive, credit spreads account for less than 20 percent of all-in yields today, versus a historical average of nearly 30 percent. Across investment-grade corporate ratings, spreads remain near the low end of their historical range, leaving little buffer if growth expectations weaken.

Source: Guggenheim Investments, Bloomberg. Data as of 6.30.2026. Grey areas represent recession.

Source: Guggenheim Investments, Bloomberg. Data as of 3.31.2026.

As more investors rely on passive fixed-income strategies, the limitations of benchmark-constrained investing become even more pronounced. We estimate that nearly $3 trillion has flowed into ETFs and passive mutual funds over the past decade, compared with just $584 billion into actively managed equity and taxable bond funds. By design, passive strategies cannot actively manage risks or capitalize on price dislocations when market conditions change. In addition, index-tracking vehicles lock investors into the Agg universe of investments, further concentrating assets in the same benchmark-eligible securities.

This trend warrants caution. While passive vehicles are often favored for perceived liquidity, periods of market stress tend to trigger concentrated outflows. This can exacerbate volatility, forcing asset managers to sell into weakening markets to meet redemptions—creating a structural risk that investors may underappreciate.

We believe actively managed ETFs offer a compelling alternative, particularly in market segments that have historically been difficult to access through traditional fund structures. They combine the liquidity and transparency of the ETF wrapper with the security selection and credit expertise needed to navigate more complex, less commoditized sectors. In our view, active ETFs are a valuable complement to a broader fixed-income allocation, especially as more of the opportunity set sits outside benchmark-eligible securities.

Source: Guggenheim Investments, Morningstar. Data as of 3.31.2026.

Fixed-income returns are rarely consistent from year to year, favoring managers that can capitalize on emerging opportunities. The performance leadership among sectors shifts frequently, with leveraged loans, high yield, investment-grade corporate bonds, and structured credit each taking turns at the top. This rotation creates opportunity for active managers to add value by adjusting allocations across sectors. Capturing that value requires a disciplined and time-tested investment process grounded in research. Of course, there will be periods when the Agg will outperform an active fixed-income manager but, over a cycle, experienced active managers can find opportunity and limit risk in a manner that achieves better results for their clients.

Source: Guggenheim Investments, Bloomberg. Data as of 6.30.2026. Indexes consist of the UBS S&P Leveraged Loan Index, Bloomberg U.S. Corporate High Yield Index, Bloomberg U.S. Treasury Index, Bloomberg Municipals Index, Bloomberg CMBS Investment-Grade Index, ICE BofA AA-BBB ABS Index, Bloomberg U.S. Mortgage-Backed Securities Index. Performance displayed represents past performance, which is no guarantee of future results. Performance will vary over different market cycles. Index information is provided for illustrative purposes only and is not meant to represent the performance of a fund. Referenced indices are unmanaged and not available for direct investment. Index returns do not reflect any management fees, transaction costs or expenses.

The fixed-income landscape in 2026 presents some of the most attractive opportunities in decades, but also significant challenges. While traditional benchmarks like the Agg may not fully capture the breadth of possible fixed-income investment opportunities, a diversified and active approach can help unlock returns by investing across the fixed-income spectrum, including sectors not included in the Agg. With the chasm between investors’ income targets and benchmark yields likely to persist, traditional views of core fixed-income management need to evolve. In our view, investors must be willing to look beyond the benchmark to explore sectors in which value remains underexploited. These sectors are varied and complex, requiring significantly more credit and risk management expertise, ongoing diligence, and deep deal sourcing relationships, but we believe it offers potentially better risk-adjusted returns over time. For established investors like Guggenheim Investments, deep expertise in sourcing structured products and managing credit risk positions our team to potentially generate returns and manage risk across the debt capital structure in a variety of industries.*

Past performance does not guarantee future results. Source: Guggenheim Investments, Bloomberg. This information is provided for informational purposes only and is intended to reflect the general characteristics of certain fixed-income sectors in the recent market environment. The characteristics shown herein do not represent characteristics of any client portfolios and there is no guarantee that assets with similar characteristics will be available in the future. Corporate bond index data is based on the yield to worst (YTW) and maturities of the AA-, A-, BBB-, BB-, and B-rated sleeves of the Bloomberg U.S. Corporate Bond Index as of 6.30.2026. Collateralized loan obligation (CLO) data is based on the simple yield and weighted average life (WAL) of the J.P. Morgan CLO Index (AAA, AA, A, and BBB) as of 6.30.2026. CLO index yields assume that forward benchmark rates are realized. Commercial ABS information is derived from the aircraft, equipment, railcars, utility, and franchise subsectors of the ICE BofA AA-BBB U.S. Fixed Rate Asset Backed Index as of 6.30.2026, and does not include auto, consumer, student loans, single family rentals, collateralized mortgage obligations, manufactured housing, credit cards, home equity, payment rights, and non-performing loans subsectors. Weighting for the selected commercial ABS universe is based on the current face value in index for the WAL and market value in index for YTW. The subsectors included in commercial ABS are generally issued less frequently, backed by less familiar assets, and potentially higher yielding than those subsectors that are excluded. Because they are less common, they may be more susceptible to liquidity and valuation risk than other ABS subsectors.

The fixed-income landscape in 2026 presents some of the most attractive opportunities in decades, but also significant challenges. While traditional benchmarks like the Agg may not fully capture the breadth of possible fixed-income investment opportunities, a diversified and active approach can help unlock returns by investing across the fixed-income spectrum, including sectors not included in the Agg. With the chasm between investors’ income targets and benchmark yields likely to persist, traditional views of core fixed-income management need to evolve. In our view, investors must be willing to look beyond the benchmark to explore sectors in which value remains underexploited. These sectors are varied and complex, requiring significantly more credit and risk management expertise, ongoing diligence, and deep deal sourcing relationships, but we believe it offers potentially better risk-adjusted returns over time. For established investors like Guggenheim Investments, deep expertise in sourcing structured products and managing credit risk positions our team to potentially generate returns and manage risk across the debt capital structure in a variety of industries.