Active Fixed Income Perspectives Q1 2026: Income in Focus

Active Fixed Income Perspectives Q1 2026: Income in Focus

Expert Perspective

January 26, 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.

Paul Malloy, CFA

Head of U.S. Municipals

Paul Malloy, CFA

Head of U.S. Municipals

At Vanguard since 2005

In industry since 2005

Paul Malloy is head of municipal investment at Vanguard. Previously, he was head of Vanguard Fixed Income Group, Europe. In this role, Mr. Malloy managed portfolios that invested in global fixed income assets. He also oversaw Vanguard's European Credit Research team. Mr. Malloy joined Vanguard in 2005 and the Fixed Income Group in 2007 and has held various portfolio management positions in Vanguard's offices in the United Kingdom and the United States. In past roles, he was responsible for managing Vanguard's U.S. fixed income ETFs as well as overseeing a range of fixed income index mutual funds.

Mr. Malloy earned an M.B.A. in finance from the Wharton School of the University of Pennsylvania and a B.S. in economics and finance from Saint Francis University. He is a CFA® charterholder.

Dan Larkin, CFA

Senior Client Portfolio Manager

Dan Larkin, CFA

Senior Client Portfolio Manager

Dan Larkin joined Vanguard in 2016 as a senior product manager in Vanguard Portfolio Review Department, where he is responsible for supporting the active taxable fixed income product lineup, including: monitoring each fund’s positioning and performance in the markets, communicating about our products internally and externally, and driving and implementing product improvements.

Before joining Vanguard, Mr. Larkin was the director of fixed income for Nationwide Financial's Manager Research Team and was charged with the oversight and manager search efforts for all of Nationwide's sub-advised fixed income mutual fund strategies. Previously, he was a vice president at Barclays Capital responsible for the Mid-Atlantic business of Barclays portfolio management platform, POINT. There he worked with large institutional clients and was responsible for new business development, portfolio analysis, and relationship management. Prior to his time at Barclays, he was a mortgage-backed securities analyst at Standard & Poor's.

Mr. Larkin earned a B.B.A. in finance at James Madison University.

Nathaniel Earle, CFA

Senior Client Portfolio Manager

Nathaniel Earle, CFA

Senior Client Portfolio Manager

Nate Earle is a senior active fixed income product manager at Vanguard, primarily focusing on the firm’s municipal bond franchise. Prior to joining the company, Mr. Earle came from State Street Global Advisors, where he served as a fixed income portfolio strategist. Prior to joining SSgA in 2017, he held similar roles in the fixed income product management organizations of both Standish and PIMCO. Mr. Earle earned a B.A. at Bates College and an M.B.A. from the Kellogg School of Management. He is a CFA charterholder and a certified FRM.

Key takeaways

Move beyond cash: Extend to intermediate duration to lock in durable income.

Build an all-weather portfolio: Diversification can maintain upside while reducing potential downside.

Munis: Overweight longer maturities for tax-exempt portfolios. Investors can add materially higher yield with attractive roll return potential as long-term bonds move toward maturity and down a historically steep curve.

Big picture

Cash is no longer king: Yields remain compelling, and intermediate duration looks superior to cash. Carry—the return from income, roll down, and other factors—became king in 2025, and we expect its reign to continue in 2026.

Yield curve is stable: We expect 10-year Treasury yields to hold within a range around current levels. We see a tactical opportunity for some additional steepening in the curve.

Bond yields versus T-bills

This line chart shows how the yield-to-worst for the three-month Treasury bills, or cash, fell following the federal funds rate cuts in 2024, and the one-to-five-year U.S. Treasuries yielding more than cash beginning in December 2025. Yields for Investment-Grade Corporate bonds, U.S. Mortgage-Backed Securities, the U.S. Aggregate, and one-to-five-year U.S. corporate bonds also remain attractive over cash, illustrating how investors can find better yields by investing further out on the yield curve. Source: Bloomberg, as of December 31, 2025. — **Source:** Bloomberg, as of December 31, 2025.
**Indexes used in chart:** The following indexes are represented: Bloomberg U.S. Corporate Index, Bloomberg U.S. Mortgage Backed Securities Index, Bloomberg U.S. Aggregate Bond Index, Bloomberg U.S. Corporate 1–5 Years Index, Bloomberg U.S. Treasury Bill 1–3 Month Index, Bloomberg U.S. Treasury 1–5 Years Index.

**Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.**

Credit

We expect credit to outperform government bonds again in 2026. Yields are attractive across sectors, and underlying fundamentals remain broadly healthy. Spreads are tight but justified.

Corporate supply to surge: Net supply, driven by AI-related capital expenditures, is expected to increase 23% to $800 billion. Strong investor demand should hold with yields near 5%.

High-yield defaults in check: Default rates remain low and relatively stable. Security selection offers the opportunity to outperform in this market with spreads at multi-decade lows.

Municipals offer value: Long end offers standout value. Beyond the 10-year maturities, the curve takes a dramatic bend upward, offering the greatest yield pickup to 20-year bonds (118 bps) recorded in the past decade.

Economy, policy, & outlook

Globally: Expansionary fiscal policy and less restrictive monetary policy will provide market support this year.

U.S.: We expect real GDP growth to push above 2%. We continue to monitor inflation and the labor market.

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

Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline.

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

Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund’s trading or through your own redemption of shares. For some investors, a portion of the fund’s income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.

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