Fixed-Income Sector Views
Fourth Quarter 2026
Our investment approach heading into the end of the year is guided by several key dynamics: yields are attractive at their highest levels since 2007, with what we believe is limited scope for Treasury yields to move materially higher; credit spreads in many sectors remain tight; and credit fundamentals are strong overall but weakening in industries more exposed to tariffs, technology shifts, and interest rates. In this environment, our positioning emphasizes income generation and diversification. We prefer high carry instruments within defensive sectors, including senior commercial ABS and non-Agency RMBS, where complexity provides a yield premium. Within corporate credit, we remain up in quality. We continue to believe Treasury Inflation-Protected Securities offer a compelling risk-reward profile, providing meaningful upside if the Federal Reserve hikes less than currently priced in and a durable hedge if inflation reaccelerates.
Sector-Specific Outlooks in This Report
Important Notices and Disclosures
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. Private debt investments are generally considered illiquid and not quoted on any exchange; thus they are difficult to value. The process of valuing investments for which reliable market quotations are not available is based on inherent uncertainties and may not be accurate. Further, the level of discretion used by an investment manager to value private debt securities could lead to conflicts of interest. Municipal bonds may be subject to credit, interest, prepayment, liquidity, and valuation risks. In addition, municipal securities can be affected by unfavorable legislative or political developments and adverse changes in the economic and fiscal conditions of state and municipal issuers or the federal government in case it provides financial support to such issuers.
