Time to Allocate to Fixed Income
Income-based returns are back, and investors no longer need to risk equity-type drawdowns or sacrifice liquidity to achieve their investment objectives. In our view, it is an opportune time to increase fixed income allocations.
7 mins Reading time
Published on 17 November 2025
Income-based returns are back, and investors no longer need to risk equity-type drawdowns or sacrifice liquidity to achieve their investment objectives. In our view, it is an opportune time to increase fixed income allocations.
As US equities continue to dominate the MSCI World Index with increasing concentration risks, fixed income markets offer potential for improved risk-adjusted returns and reduced volatility due to four key factors:
- Yield is back, and we believe it’s here to stay: Yields in many areas of the fixed income market are now close to – or even above – the long-term returns of the MSCI World Index.
- Yields are just the starting point for returns: Active management has the potential to exploit market dislocations in higher-return segments without compromising liquidity.
- More consistent returns, lower drawdown risk and diversification benefits: Income-based returns are more predictable, and bond markets have historically had far lower volatility than equity markets.
- Corporate credit fundamentals remain robust: The role of corporate treasurers is becoming more strategic. The resilience of corporate balance sheets and steepening yield curves further reinforce the strength of the asset class at this stage of the cycle.
RELATED FUNDS
Easy access to our funds and related content
BNY Strategic Bond Fund
2821304 Exp : 31 October 2026
YOU MIGHT ALSO LIKE
Leaders rotate in and out. No single fixed income sector consistently dominates performance over time, and strong performance in one sector rarely carries over from one year to the next. For example, U.S. Treasury bills led in 2018 and 2022 but are one of the weakest performers year-to-date.
Cathy Braganza, senior portfolio manager at Insight Investment, explains why tightening spreads with high yields create a potentially attractive risk-return balance for credit investors.
For advisers, focused on a breadth of client needs, there isn’t enough time in their day to navigate the complex nuances of bond markets. This explains the popularity of strategic bond funds. They can hand decision-making to an expert, with a flexible mandate to roam across bond markets, finding the best opportunities. However, this flexibility means evaluation is difficult, and advisers aren’t always getting the outcomes they expect.
Global sovereign bonds with currency-hedged exposure may present an attractive tactical investment opportunity amid ongoing uncertainty, according to the BNY Investment Institute. With interest rate differentials currently favouring the US and developed market (DM) government bond yields elevated, the environment supports a positive outlook for fixed income investors seeking income and risk diversification.
