STAYING IN CONTROL
Maintaining Balance with Bonds
Discover Fixed Income funds
Bonds play a vital role in diversified portfolios. Our seasoned portfolio managers draw on decades of deep expertise across the full spectrum of active fixed income solutions. Our strategies leverage global research and extensive track records to unlock opportunities and address clients’ long-term goals-from generating reliable income, managing volatility, and preserving capital- in today’s new risk reality.
Bonds deliver solutions for core investor challenges
In today’s dynamic markets filled with endless investment options, bonds remain indispensable in tackling investors’ core concerns.
EQUITY VALUATIONS
How can bonds help?
The level of absolute yields available in bond markets is at the highest seen before the global financial crisis, especially at longer maturities. This means bond markets offer a compelling, income-based return.
If equity markets were to fall sharply, interest rates could decline, and this could also present the opportunity to generate capital gains from bonds.
CONCENTRATION RISK
How can bonds help?
An active fixed income manager will typically build a highly diverse portfolio of debt issued by many different companies or governments. This makes bond portfolios far less reliant on the performance of any single company.
If equity markets were to fall sharply, interest rates could decline, and this could also present the opportunity to generate capital gains from bonds.
Major market dislocations are more frequent than you might think. They follow a familiar pattern, where investors question assumptions that they confidently held just a few weeks earlier. An essential skill in active management is the ability to transform sudden bouts of market volatility into investment opportunities.
RISK OF EQUITY MARKET LOSSES
How can bonds help?
Fixed income markets are typically far less volatile than equity markets. Periodic coupon payments deliver reliable income streams, adding a cushion which can smooth overall returns.
Some higher-risk parts of fixed income markets, such as high yield credit, have generated returns comparable to other growth assets, but have historically experienced shallower drawdowns and faster recoveries than equities during periods of crisis.
If equity markets were to fall sharply, interest rates could decline, and this could also present the opportunity to generate capital gains from bonds.
You won’t find out about the next credit crisis via a calendar invite
UNKNOWN RISKS
How can bonds help?
Fixed income markets offer investors a broad range of assets with varying prospects for risk and return. This allows an investor to choose a fund that better fits their risk and return profile.
For example, bonds with a shorter term to maturity are usually less sensitive to interest-rate changes than longer-dated bonds. This can reduce the potential for volatility.
Some investment approaches may seek absolute returns, which can help to significantly reduce the risk of experiencing capital losses. One example is strategic bond strategies, which invest across global bond markets, with the manager adjusting risk exposure based on market conditions.
Some higher-risk parts of fixed income markets, such as high yield credit, have generated returns comparable to other growth assets, but have historically experienced shallower drawdowns and faster recoveries than equities during periods of crisis.
If equity markets were to fall sharply, interest rates could decline, and this could also present the opportunity to generate capital gains from bonds.
RESILIENCE OF BOND MARKETS
How can bonds help?
The yield which bonds offer today provides a significant buffer should rates rise. Unlike in the 2022 crisis, a very material rise in yields would be needed for bond returns to turn negative. The graphic below sets out the impact of yield moves on bond returns.
Some higher-risk parts of fixed income markets, such as high yield credit, have generated returns comparable to other growth assets, but have historically experienced shallower drawdowns and faster recoveries than equities during periods of crisis.
If equity markets were to fall sharply, interest rates could decline, and this could also present the opportunity to generate capital gains from bonds.
Source: Bloomberg, 30 September 2025. ICE BAML Global Corporate Index ICE BAML Euro Corporate Index ICE BAML Global High yield Index ICE BAML Global Non-Fins HY Constrained index EM Corporate Bond Fund index.
Six facts about financial resilience
Yields in many areas of the fixed income market are now close to – or even above – the long-term returns of the global equity market. This presents the potential for equity-like returns through fixed income, which offers contractually defined income, and which has historically experienced lower volatility.
Source: Bloomberg and Insight, 31 October 2025. Bloomberg Indies: Global aggregate Global investment grade corporates US high yield Global high yield. MSCI World Index.
US equities now account for over 70% of the MSCI World Index, reflecting an increasingly lopsided global equity market dominated by a handful of large US companies. The Magnificent Seven, the leading US tech companies, have a market capitalization of close to 18% of global GDP, leaving little room for error.
The market capitalisation of the Magnificent Seven leaves little room for error
Source: Bloomberg and Insight, 31 October 2025.
Magnificent Seven – Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta and Tesla.
Bond markets have historically had far lower volatility than equity markets, without the large drawdowns that equity markets periodically experience. This is because returns in fixed income are largely generated by income, in contrast to equity markets, where returns are reliant on capital appreciation.
12- month rolling returns expose the relative drawdown risk across the two asset classes
Source: Bloomberg and Insight. 31 October 2025.
Despite the new market terrain in 2025, the wise heed past lessons. The bar chart illustrates the most significant global stock market setbacks during the last 25 years observing the time it took to recover in each case. Notably, Global bonds made a positive contribution to investor portfolios in each period.
Source: Bloomberg and Insight. Returns provided in total returns. 30 September 2025. MSCI World Index & MSCI Global Bond Index.
Institutional investors invest with the long term in mind, concentrating on maximising the certainty of achieving a specific set of reliable outcomes.
The relative price stability and the predictable income stream that bonds offer presents an attractive risk adjusted return. Institutional investors have long appreciated the benefits of fixed income allocations for this reason, often allocating substantial proportions of their portfolios to bond markets through both fixed income and Liability Driven Investment approaches.
Regional asset allocations of institutional investors
Source: Insight, 31 October 2025.
In bond markets, active managers generally outperform passive funds, in contrast to equity markets where active managers generally struggle. For active fixed income, bond yields are just the starting point for a returns.
Median active manager alpha
Source: eVestment and Bloomberg, 30 June 2025. Alpha is based on each individual strategy’s benchmark
The application for bonds
Looking ahead, we see compelling reasons for investors to consider the role of bonds in a diversified portfolio given their relative price stability and the predictable income stream they can offer. Bonds can be particularly attractive for risk-aware investors seeking ways to safeguard their capital from market volatility and/or looking to protect wealth at or nearing retirement.
Beyond providing regular interest payments – known as coupons - bonds can add to diversification, helping to reduce overall volatility and smooth returns over time. In periods of economic uncertainty or recession, high-quality bonds are typically seen as safe havens, offering a means to preserve capital.
Furthermore, when interest rates are stable or falling, existing bonds with higher yields become especially appealing, potentially offering the dual benefits of income and capital appreciation. The bond market also offers flexibility, with options including government, corporate, and inflation-linked bonds which enables an investor to tailor their portfolio to their risk appetite and financial goals.
While equities and alternative assets remain vital, in uncertain economic times considering an allocation to bonds can provide stability, steady income, and diversification, helping investors achieve more resilient and consistent results.
Bond strategies to help investors pursue their goals
Goal |
Bond strategy |
| Total return | Absolute return bond |
| Income and diversification | Government bonds, investment grade, municipal bonds, global aggregate |
| Income | Global credit (investment grade rated), asset-backed securities |
| Income and growth | Strategic bond, multi-sector credit |
| Growth | Global high yield, emerging markets, secured finance |
Fixed income funds
Clients can access traditional and specialised fixed income strategies which can be tailored to meet their specific needs.
BNY Strategic Bond Fund
The Fund targets opportunities across global fixed income markets either denominated in or hedged back to sterling with a focus on ESG factors.
Credit quality breakdown chart
Responsible Horizons UK Corporate Bond Fund
The Fund targets opportunities in sterling denominated credit with a focus on ESG factors.
Credit quality breakdown chart
BNY Mellon Gilt Fund
The Fund targets opportunities in sterling UK government bonds.
Credit quality breakdown chart
BNY Mellon Inflation-Linked Corporate Bond Fund*
The Fund is a thematic alternative to mainstream corporate bond funds, it invests at least 80% of the portfolio in inflation-linked corporate bonds and/or assets which in combination provide the investment characteristics of inflation-linked corporate bonds. It seeks to generate income and capital growth over the long term (5 years or more).
Credit quality breakdown chart
*Credit quality breakdown chart for this Fund represent the Long position.
**Others: Includes Cash and Derivative exposure including credit index positions.
Source: Insight Investment, December 2025.
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RESOURCES
A helpful range of literature to support our fixed income offering
SDR
RELATED INSIGHTS
Reducing volatility with absolute return bond strategies
Absolute return bond strategies aim to deliver steadier outcomes by prioritising capital preservation and actively managing volatility. This approach offers investors a potentially more resilient way to navigate uncertain markets, writes Shaun Casey, senior portfolio manager at Insight Investment.
Bonds Deliver Solutions for 6 Core Challenges
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The roles fixed income can play in your portfolio
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Key investment risks applicable to all funds
Currency Risk: This Fund invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Fund.
Changes in Interest Rates & Inflation Risk: Investments in bonds/money market securities are affected by interest rates and inflation trends which may negatively affect the value of the Fund.
Credit Risk: The issuer of a security held by the Fund may not pay income or repay capital to the Fund when due.
The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.
The BNY Mellon Inflation-Linked Corporate Bond Fund can invest more than 35% of net assets in different Transferable Securities and Money Market Instruments issued or guaranteed by any EEA State, its local authorities, a third country or public international bodies of which one or more EEA States are members.
3013439 Exp : 31 December 2026
