Active Fixed Income Perspectives Monthly Pulse: August 2026

Active Fixed Income Perspectives Monthly Pulse: August 2026

Expert Perspective

August 18, 2026

Sara Devereux

CIO VCM, Global Head of Fixed Income

Sara Devereux

CIO VCM, Global Head of Fixed Income

At Vanguard since 2019

In industry since 1992

Sara Devereux is a principal and global head of Fixed Income Group. Ms. Devereux has oversight responsibility for investment activities within the rates-related sectors of the taxable fixed income market including foreign exchange. Prior to joining the firm, Ms. Devereux was a partner at Goldman Sachs, where she spent over 20 years in mortgage-backed securities and structured product trading and sales. Earlier in her career, she worked at HSBC in risk management advisory and in interest rate derivatives structuring. Ms. Devereux started her career as an actuary at AXA Equitable Life Insurance. Ms. Devereux earned a B.S. in mathematics from the University of North Carolina at Chapel Hill and an MBA from the Wharton School of the University of Pennsylvania.

Christopher Alwine, CFA

Global Head of Credit

Christopher Alwine, CFA

Global Head of Credit

At Vanguard since 1990

In industry since 1990

Christopher Alwine is global head of Credit and Rates, where he oversees portfolio management and trading teams in the United States, Europe, and Asia-Pacific for active corporate bond, structured product, and emerging markets bond portfolios. He joined Vanguard in 1990 and has more than 20 years of investment experience.

Mr. Alwine was previously head of Vanguard's Municipal Group. There, he led a team of 30 investment professionals who managed over $90 billion in client assets across 12 municipal bond funds. He has served in multiple roles throughout his career in the Fixed Income Group. His experience includes trading, portfolio management, and credit research. Mr. Alwine's portfolio management experience spans both taxable and municipal markets, as well as active and index funds. He is also a member of the investment committee at Vanguard that is responsible for developing macro strategies for the funds.

Mr. Alwine earned a bachelor's degree in business administration from Temple University and an M.S. in finance from Drexel University. He holds the Chartered Financial Analyst® certification.

Roger Hallam, CFA

Global Head of Rates

Roger Hallam, CFA

Global Head of Rates

At Vanguard since 2022

In industry since 2000

In his role as global head of Rates, Roger Hallam oversees the Global Rates, Treasury, Mortgages and Volatility, Currency, and Money Market Teams. He is a member of the Vanguard Senior Leadership Team and the Senior Investor Team. Prior to joining Vanguard, Mr. Hallam had been at J.P.Morgan Asset Management for more than 20 years as a senior global fixed income portfolio manager, and more recently as chief investment officer for Currencies. Mr. Hallam served as chair of the Currency Investment Policy Committee and was a member of the Global Fixed Income, Currency, and Commodity Investment Quarterly strategy team. He earned a B.S. from the University of Warwick and is a CFA charterholder.

Justin Schwartz, CFA

Head of U.S. Municipals

Justin Schwartz, CFA

Head of U.S. Municipals

Current specialty: Municipal bond market
Year started in investment industry: 2004
Year started at Vanguard: 2004
Education:
- B.S., University of Richmond

Key takeaways

Our base case is for near-trend U.S. growth through 2026, supported by sustained AI-related investment and solid consumer spending even as fiscal stimulus fades, with growth accelerating in 2027.

The labor market is recalibrating toward a “low hire, low fire” state. We expect unemployment to rise gradually through the remainder of 2026 before stabilizing in 2027.

Inflation has likely peaked but remains sticky and above target. Fading tariff effects, lower oil prices, and AI-driven productivity gains should support a gradual moderation through 2027.

We continue to expect inflation and labor market dynamics to keep the Fed cautious with a bias toward tightening if inflation remains elevated.

Our positioning favors a long duration tilt, a higher-quality bias in credit, and a continued focus on security selection across sectors.

Outlook

Resilient growth as the labor market recalibrates and inflation moderates

Our base case remains for the U.S. economy to maintain near-trend growth through 2026 (2.3%), with growth accelerating in 2027 (3.0%). Sustained AI-related investment and solid consumer spending remain important drivers, while the contribution from fiscal stimulus earlier in the year continues to fade.

The labor market continues to recalibrate toward a new “low hire, low fire” state. Although unemployment remains low, the latest payroll report showed job losses, suggesting that seasonal factors may have boosted employment gains earlier in the year, thereby reducing concerns that labor-market strength could reaccelerate inflationary pressures. We expect the unemployment rate to rise gradually through the remainder of 2026 before stabilizing in 2027.

Inflation remains sticky and above the Fed’s target. The AI-infrastructure buildout is likely contributing to near-term inflation pressures. However, fading tariff effects, the retracement in oil prices from their peaks, and AI-driven productivity gains should support a gradual moderation of inflation through the remainder of 2026 and 2027, while remaining above the Fed’s 2% target.

These dynamics should keep the Fed cautious, with a bias toward tightening if inflation remains elevated. Inflation risks remain skewed to the upside, particularly if labor-market conditions prove more resilient than expected or energy prices remain elevated. Downside risks to growth include a pullback in AI-related investment or renewed escalation of geopolitical conflict.

Our active positining

Long-duration bias in rates, selective carry in credit, and curve-driven value in municipals

Rates: We are long duration in U.S. Treasuries, continue to pursue targeted global relative-value opportunities including an overweight to German bunds versus U.S. Treasuries, and have closed our long U.S. TIPS versus Treasuries trade after benefitting from positive carry in July. Outside the U.S., we remain short duration with a curve-flattening bias in Japan. We also hold underweights to France and Italy as a hedge against our overall overweight to credit. In mortgages, we maintain a cycle-normal overweight through hybrid adjustable-rate mortgages, collateralized mortgage obligations, and non-agency residential mortgage-backed securities, with a reduced overweight to agency commercial mortgage-backed securities.

Credit: We remain overweight, emphasizing carry, a high-quality bias, and security selection. Strong fundamentals should remain supportive of the asset class. We expect spreads in investment-grade corporates to remain relatively range-bound between 70 and 90 basis points, with some volatility within that range. However, the risk of additional Fed tightening should limit a sustained move tighter. We favor banks and utilities within investment grade and maintain limited U.S. high-yield exposure.

Municipals: Curve steepness continues to provide attractive carry and rolldown potential, particularly around 20 years. We maintain a long municipal-duration position as a hedge against our credit overweight.

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All investing is subject to risk including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Past performance is no guarantee of future results.

Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.

Investments in bonds issued by non-U.S. companies are subject to risks including country/ regional risk and currency risk. These risks are especially high in emerging markets.

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High-yield bonds generally have medium- and lower-range credit-quality ratings and are therefore subject to a higher level of credit risk than bonds with higher credit-quality ratings.

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