Active Fixed Income Perspectives Q3 2026: Finding higher ground
Expert Perspective
|July 21, 2026
Active Fixed Income Perspectives Q3 2026: Finding higher ground
Key takeaways
Rates: Don’t overlook income beyond cash. Yields in the 1- to 10-year range on the U.S. Treasury curve remain attractive.
Credit: Issuance from AI hyperscalers with strong balance sheets adds quality to the investment-grade market.
Munis: A steep curve offers roll-down potential for long-term bonds. The market continues to evolve and expand access to tax-exempt yield.
Outlook
Big picture: Higher yields
Performance: Front-end yields rose and the yield curve flattened over the quarter. Credit markets remained stable. Municipal bonds performed well.
Why it matters: Higher yields provide both income and a larger cushion against uncertainty. That keeps us constructive on fixed income even as markets navigate policy and inflation risks.
Rates and policy: The Fed still matters
Inflation in focus: Geopolitics remains a risk, but the markets’ attention has shifted toward inflation, growth, and central bank policy. The Federal Reserve is less dovish.
Base case: We think inflation and employment trends will soften and allow the Fed to remain on hold. However, the possibility of rate hikes leaves markets sensitive to new data.
10-year U.S. Treasury: We expect yields to trade in 4.25%–4.75% range in the near term.
Credit: AI is reshaping issuance
Record issuance: Issuance over the first half of the year is at a record pace, exceeding $1.2 trillion, with roughly a quarter tied to AI-related investment.
Hyperscalers: Meta, Google, Microsoft, Amazon, Oracle, and SpaceX have become frequent issuers as they fund the AI infrastructure buildout. Investment-grade hyperscaler issuance accounts for 13% of corporate bond market issuance year to date and now represents 4% of the investment-grade corporate credit market. This quality supply expands the opportunity set, but selection still matters.
Municipal
Yield curve: A historically steep curve boosted demand and drove yields lower. Lighter issuance in the long end provided a tailwind. The steepness provides added roll-down potential for long-term bonds in the 15- to 25-year maturity range.
Prepaid energy bonds: We have been active participants in prepaid energy bonds, which generally offer a yield premium. This is a complex sector which requires credit and structural analysis.
AI hyperscaler corporate debt issuance
Source: Bloomberg, as of June 30, 2026.
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