Equities vs Fixed Income: Return drivers explained

Higher inflation, rising interest rates and greater uncertainty have made investing more challenging. For bond investors, simply owning bonds may no longer be enough to successfully diversify risk.

Today’s fixed income world rewards investment managers who are willing to accommodate changes in the market backdrop and outlook in real time.

On the face of it, Q3 2026 looked uneventful — market returns were relatively muted, and the headlines stayed fixed on bond yields, interest rates, and energy prices. But as Walter Scott's latest global update explains, there was plenty of movement beneath the surface.

Higher interest rates have become a frequently cited risk to corporate earnings and the economy. The conventional thinking is straightforward: when borrowing costs rise, companies face higher interest expenses, profits come under pressure, and economic growth slows. While there is truth to that relationship, the current cycle may differ from investors’ expectations.