Active Fixed Income Perspectives Q3 2024: The high road

Taking the high (quality) road

In her book How to Decide: Simple Tools for Making Better Choices, cognitive psychology expert Annie Duke says: “Most decisions have a mix of upside and downside potentials. When figuring out whether a decision is good or bad, you are essentially asking if the upside potential compensates for the risk of the downside.”

We are always asking that question. Getting to the right answer, however, requires an assessment of potential market outcomes well beyond a base case view. For us, constructing optimal portfolios starts with a detailed analysis across a range of economic scenarios. A probability-weighted approach provides a better foundation to identify opportunities and manage risks.

In recent months, the worst-case fear for bonds—a reacceleration in inflation and likely higher interest rates—has faded. Growth indicators have been somewhat mixed, but there are more signs of weakness and recent inflation readings have been lower than expected.

We believe we are approaching a turning point in the economic cycle, which historically has been a good environment for higher-quality bonds. In our view, the risk of a near-term downturn is still low, but we are mindful that a prolonged period of restrictive policy rates poses a risk to the most vulnerable fixed income segments, where most of the good news has been priced in.

Yields well above inflation

Investors should note that real interest rates—the expected return from yields after expected inflation is subtracted—remain near recent historical highs. The entire real yield curve is higher today than it was a year ago and two to three percentage points higher than the day before the Fed started raising rates.

Higher starting yields imply higher returns and better downside hedging. Even if rates generally moved up, higher yields today—relative to the beginning of 2022—can cushion losses from price changes.

Treasury par real rates curve

This line chart shows the real (inflation-adjusted) rates for Treasuries on a par basis. As of June 30, 2024, the 5-year real yield was 2.09%, above the 1.95% from one year prior and -1.16% on March 16, 2022, right before the Federal Reserve began raising interest rates. As of June 30, 2024, the 7-year real yield was 2.08%, above the 1.74% from one year prior and -1.16% on March 16, 2022. As of June 30, 2024, the 10-year real yield was 2.08%, above the 1.59% from one year prior and -0.61% on March 16, 2022. As of June 30, 2024, the 20-year real yield was 2.16%, above the 1.56% from one year prior and -0.22% on March 16, 2022. As of June 30, 2024, the 30-year real yield was 2.23%, above the 1.62% from one year prior and -0.02% on March 16, 2022. — **Notes:** March 16, 2022 is the day before the Federal Reserve began raising interest rates in the latest hiking cycle.

**Source:** U.S. Treasury.

Fixed income sector returns and yields

A series of bar-and-dot charts shows second-quarter 2024 returns, year-to-date returns as of June 30, 2024, returns since the Federal Reserve stopped rate hikes on July 26, 2023, and yields to worst as of March 31, 2024, for several fixed income sectors. U.S. high-yield bonds had a second-quarter return of 1.09%, year-to-date return of 2.58%, return of 9.19% since the Fed paused rate hikes, and yield to worst of 7.91%. Emerging markets bonds had a second-quarter return of 0.30%, year-to-date return of 2.34%, return of 7.74% since the Fed paused rate hikes, and yield to worst of 7.93%. U.S. asset-backed securities had a second-quarter return of 0.98%, year-to-date return of 1.66%, return of 4.96% since the Fed paused rate hikes, and yield to worst of 5.32%. U.S. commercial mortgage-backed securities had a second-quarter return of 0.67%, year-to-date return of 1.53%, return of 5.30% since the Fed paused rate hikes, and yield to worst of 5.48%. Treasury Inflation-Protected Securities had a second-quarter return of 0.79%, year-to-date return of 0.70%, return of 2.28% since the Fed paused rate hikes, and yield to worst of 4.77%. Global aggregate bonds had a second-quarter return of 0.12%, year-to-date return of 0.14%, return of 3.93% since the Fed paused rate hikes, and yield to worst of 3.90%. Municipal bonds had a second-quarter return of -0.02%, year-to-date return of -0.40%, return of 2.49% since the Fed paused rate hikes, and yield to worst of 3.72%, as well as a tax-equivalent yield of 6.28%. U.S. corporate bonds had a second-quarter return of -0.09%, year-to-date return of -0.49%, return of 4.14% since the Fed paused rate hikes, and yield to worst of 5.48%. U.S. aggregate bonds had a second-quarter return of -0.07%, year-to-date return of -0.71%, return of 2.37% since the Fed paused rate hikes, and yield to worst of 5.00%. U.S. Treasuries bonds had a second-quarter return of 0.09%, year-to-date return of -0.86%, return of 1.53% since the Fed paused rate hikes, and yield to worst of 4.57%. U.S. mortgage-backed securities bonds had a second-quarter return of 0.07%, year-to-date return of -0.98%, return of 1.71% since the Fed paused rate hikes, and yield to worst of 5.22%. — **Note:** The municipal tax-equivalent yield is calculated using a 40.8% tax bracket, which includes a 37.0% top federal marginal income tax rate and the 3.8% Net Investment Income Tax to fund Medicare.

**Sources:** Bloomberg indexes and J.P. Morgan, as of June 30, 2024.

**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.**

Rates and inflation

It’s been almost a year since the Fed last raised its policy rate. Despite substantially higher borrowing costs, the U.S. economy continues to show strength. After a brief scare in the first quarter, inflation appears to be back on a better path. While recent readings are encouraging, our forecasts see Core PCE inflation trending sideways around the high 2% range into 2025, which underlines the challenge of slowing the inflation rate to the Fed’s target.

Stable growth and sticky inflation alongside a firm but gradually normalizing labor market are consistent with the market narrative that policy rates are likely to remain higher for longer. Our base case view continues to be that the Fed will remain on hold for most, if not all, of this year. Monetary policy is highly data-dependent, and the data have shown that it is too soon for the Fed to start cutting.

If the economy were to weaken faster than expected, the more modest inflation trend we’ve seen recently would allow the Fed to cut rates if needed.

Growth outside the U.S. has improved and progress on inflation has allowed some central banks to begin to ease. However, the Fed will dictate, to varying degrees, what rate-cutting cycles will look like globally.

Rates of inflation (previous three months, annualized)

This line chart shows four readings for inflation data, the previous three months, annualized: the supercore Consumer Price Index (CPI), the core CPI, the supercore Personal Consumption Expenditures (PCE) Price Index and the core PCE from January 1, 2022 through June 30, 2024. The main point to see here is that while these measures of inflation hit a recent high in March of 2024, all four of these three-month averages have fallen precipitously since. Core CPI finished June at 2.1% and supercore CPI at 1.3%. The most recent PCE data have not yet been published. — **Source:** Bureau of Labor Statistics, Bureau of Economic Analysis, as of June 30, 2024. PCE data as of June 30, 2024 not yet reported as of publication.

Portfolio positioning and strategy

Higher-for-longer rates can be a support for markets if certain conditions hold. If inflation continues to slow gradually, markets will have less uncertainty about the Fed’s next move. If growth is good enough, cracks are less likely to appear in credit. Then markets can hold within predictable ranges while higher yields generate more attractive returns for investors.

The risk we worry about is the potential for “higher for longer” to become “higher until something breaks.” Valuations and credit quality are still the key factors driving our portfolio strategy.

In our view, rates markets are more appropriately priced for that uncertainty while the lower-quality segments of credit are not.

Rates

In U.S. rates, we’ve been trading the range in 10-year Treasuries over recent months, between 4.25% and 4.75%. Recent data have likely shifted the range lower over the near term, to 4.00%– 4.50%, but rising fiscal concerns could present upside risks to yields. We are biased to add duration at this point in the cycle and will look for attractive risk/reward opportunities to do so if rates test the top end of our expected range.

On curve positioning, we continue to look for ways to benefit from a steeper yield curve. Timing is challenging, but thematically we see several factors that should contribute to a more typical upward-sloping curve. Near term, we are more tactical given that steepener trades have a negative carry profile as long as the yield curve remains inverted.
Outside the U.S., we see opportunities in global rates markets. We continue to hold a short position in 10-year Japanese government bonds. We are also long Spain and Greece while being short France and Germany.
We also continue to see value in agency mortgage-backed securities and maintain our overweight to bonds with a more stable cash- flow profile.
Over the quarter, our portfolios exited positions in front-end Treasury Inflation- Protected Securities as the positive seasonal impact becomes less favorable over the coming months.

Treasury yields shifted lower in the second quarter

This line chart shows how Treasury yields hit highs last October, then fell, backed up again in the first quarter, and have since shifted into a lower gear. The 30-day moving averages demonstrate this movement clearly. The 2-year Treasury yield settled just above 4.7% on June 30, while the 10-year Treasury ended the second quarter at 4.4%. — **Source:** Bloomberg, as of June 30, 2024.

**Past performance is no guarantee of future returns.**

Credit

Our outlook for credit is positive for the near term, but downside risks are more prevalent in lower-quality segments that have benefited from the ”Goldilocks” environment that’s driven spreads lower over the last eight months.

Broadly, we still see strength in underlying credit fundamentals, and supply/demand dynamics look more favorable now that we’ve made it through the largest wave of new issuance for the year.

Investment-grade credit should perform well across a range of economic scenarios. Higher- rated bonds are better positioned if borrowing costs remain higher for longer, but they would also be more resilient in a downturn. Spreads would widen if the economy slows quickly, but total returns should be supported by the corresponding decline in rates.
High-yield bonds are more vulnerable in both scenarios and offer too narrow a spread premium to justify a large allocation.

With spread valuations stretched, our strategy is biased toward higher-quality credit and a focus on maximizing yield while reducing our portfolio’s sensitivity to broad market risk. We like the opportunities at the front end of the curve in financials, investment-grade emerging markets, and asset-backed securities.

This strategy allows our portfolios to benefit if credit continues to perform well. But if the broader economy weakens, our more defensive approach should hold up better and provide room to add credit back at more attractive prices.

High-yield corporate spreads above investment-grade well below five-year averages

The spread for high-yield bonds over their investment-grade counterparts has grinded tighter since last October and now sits well below their 5-year averages. The B rated bonds spread over investment-grade bonds ended June 30 at 1.85%, while the 5-year average was 2.78%. The BB rated bonds spread over investment-grade bonds ended June 30 at 0.83%, well below the 1.36% 5-year average. — **Source:** Bloomberg, as of June 30, 2024.

Yields remain higher than long-term averages

This chart shows the yields and ranges for U.S. aggregate, investment-grade corporates, U.S. high-yield and emerging markets bonds. Ranges reflect the 15 years ended June 30, 2024, for aggregate, IG and high-yield bonds. The range reflects the 10 years ended June 30, 2024, for emerging markets bonds because of the limited history of the data set. The U.S. aggregate finished June 30, 2024, with a yield of 5.0%, nearly twice its 2.7% average and at the upper end of its long-term range. Investment-grade corporates finished June 30 with a yield of 5.5%, well above their 3.4% average and at the upper end of its long-term range. U.S. high yield finished the second quarter at 7.9%, above the 6.8% average and in the middle of the long-term range. Emerging markets likewise finished the second quarter at 7.9%, above the 6.1% long-term average and near the top of its range. — **Note:** Ranges reflect the 15 years ended June 30, 2024, for U.S. aggregate, investment-grade corporates, and U.S. high yield. For emerging markets, the range reflects the 10 years ended June 30, 2024, because of the limited history of the data set.

**Sources:** Bloomberg indexes and J.P. Morgan.

**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.**

Taxable portfolio positioning

Exposure	View	Strategy
Rates
U.S. duration & curve	FOMC has pushed back on the timing of the first cut. Softer Q2 '24 inflation readings raise the prospect of more dovish outcomes. 10-year Treasury yield range has likely shifted lower, to around 4.25%. Better inflation data lower the near-term risk of a sell-off in yields. Yield-curve-steepening trades are thematically attractive, but timing is a challenge.	Neutral duration, biased to add exposure toward 4.5% in 10-year Treasury yields. Positioned in steepener trades with a less negative carry profile.
Global duration & curve	Better growth/sticky inflation resulted in a "hawkish cut" from European Central Bank. Bank of Japan has more to do on policy normalization. Potential for July rate hike and asset-purchase tapering.	Long Spain & Greece, short France and Germany. Short 10-year Japanese gov't bonds.
MBS/agencies	Delayed Fed easing represents headwind for the sector. Spreads remain within our 40bp–60bp fair value range. Real money and dealer positioning are significantly long.	Remain overweight MBS sectors (agency MBS, CMOs, and CMBS). Trimmed exposure as deteriorating technicals have lowered risk/reward.
Credit
Investment- grade corporates	Spreads have widened modestly but remain well supported by strong demand. Fundamentals remain healthy and rich valuations are justified given the economy and balance sheet health. Valuations are attractive in European corporates.	Opportunities in BBB industrials and front-end financials. Tight spreads limit upside, but higher quality should hold up even if economic conditions weaken. Would look to add exposure if spreads widen.
High-yield corporates	Credit fundamentals have improved and default rates have declined. Technicals remain supportive, with most activity tied to refinancing. We remain cautious mainly because of tight valuations, particularly in higher-quality names.	Maintaining a lower-than-average allocation given spreads offers little protection against adverse outcomes. Focus is on bottom-up security selection as dispersion across issuers remains high.
Emerging markets	Reduced EM overweight in April, ahead of recent spread widening. We expect credit fundamentals to remain supportive and new issuance to be modest. Recent spread widening offers an opportunity to add back exposure to bonds that have adequately repriced.	Focused on relative value opportunities while valuations remain stretched. We like countries with greater economic resilience and more defensive bonds on the curve.
Structured products	Valuations are attractive. ABS and CMBS are cheap relative to IG corporates. We remain cautious, but the commercial real estate market is showing signs of stabilization and transaction volumes are starting to pick up.	Adding less liquid AAA rated ABS that offer attractive spread relative to the risk. In CMBS, 5-year bonds are attractive in absolute terms and relative to higher-rated corporates.

Municipal bonds

Municipals continue to be better situated to offer higher tax-exempt income than they have been in the past decade. While some lower-rated sectors like higher education will still experience credit- related challenges, the vast proportion of the market exhibits strong fundamentals. With the Fed’s next move more clearly trending toward an interest rate cut rather than a hike, investors can allow themselves to be upbeat for the next 12 months in municipal debt.

Record supply is balanced with strong demand … or is it?

We’ve been fielding questions on issuance, usually from clients hearing that fewer new muni bonds have been issued in 2024. It’s a nuanced subject that leaks into other aspects of muni investing.

Cumulative issuance in 2024 has, surprisingly, trended far higher through June 30 than it has in years. While a “normal” level of annual issuance in this market is ambiguous—various yield environments and tax changes over time have clouded averages—the amount of clearance above prior years’ levels is meaningful: 42% more issuance than this time last year, and 12% more than the previous high in 2015 (through June 30 of that year).

Tax-exempt municipal issuance by year

This line chart shows municipal bond cumulative issuance for each year from 2020 onward. So far in 2024, issuance has jumped up higher on a significantly higher track and approached $200 billion by June 30. — **Source:** Bloomberg, as of June 30, 2024.

At the same time, municipal fund flows have been mostly positive all year. Our traders report that aggregate demand for new bonds has been fierce, with many new issues being many times oversubscribed.

One may think that this is leading to a natural balance, with heavy supply being met by healthy demand. However, these higher-level data obscure the fact that very little issuance has come from the middle rungs of municipal credit (A through BB rated bonds). BBBs, for instance, make up less than 6% of the Bloomberg Municipal Bond Index. In any given period, a strong supply of such credits is less than assured.

Demand affects credit spreads

Funds are the primary buyers of middle- and lower-rated bonds in the municipal bond world. As a result, flows into these products have a strong influence on credit spreads. And with both long-term and high-yield funds focusing primarily on longer-maturity debt, demand for such products tends to have a meaningful effect on spreads on that segment of the curve. The effect is similar for short-term funds on spreads at the short end of the curve.

As mentioned last quarter, fund-buying has recently concentrated on long-term and high-yield municipal funds. While this general trend has been prevalent since the beginning of 2023, high-yield fund demand has been particularly strong year to date in 2024. Concurrently, shorter-term muni funds have experienced substantial outflows. This combination has led to meaningfully wider credit spreads, and thus greater opportunities, at the short end of the curve.

Flows into long and intermediate funds, outflows from short-term funds

This bar chart shows cash flows into and out of municipal bond mutual funds since 2023. Intermediate-term national funds have been the big winners, with $25 billion in cash flow. High-yield and long-term bond funds, both with about $6 billion in inflows, were positive. Short-term funds suffered $27 billion in outflows, 18% of starting assets. — **Source:** Morningstar, Inc., as of May 31, 2024.

Municipal spreads: BBB yields minus AAA yields

This line chart shows the spreads between BBB rated municipal bonds and AAA rated municipal bonds. While wider at the beginning of the year, that spread for bonds maturing in under 5 years ended at 82 basis points. Meanwhile, for bonds maturing between 10 and 20 years, the spread ended at 52 basis points. — **Source:** Bloomberg indexes as of June 30, 2024.

**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.**

Meanwhile, among higher-rated munis, valuations at the short end of the curve continue to look very rich relative to Treasuries. As long as managers of SMAs, who tend not to focus on relative value, continue to buy securities in this segment of the market, there is little reason to expect that valuations will improve there.

Relative to Treasuries, tax-exempt yields would still favor the longer end of the yield curve for many higher-income investors.

An asset class still on the uptrend

Municipal issuers continue to exhibit strong balance sheets, bolstered by pandemic-era stimulus. While the excesses of that period are wearing away, prudent financial decision-making continues to benefit ratings activity. While downgrades have been subdued for some time, rating upgrades have been increasing and were especially strong in the fourth quarter of 2023. Our role as active managers is to move ahead of rating changes, but the aggregated data do show the ongoing strength of the sector.

Monthly total borrowers downgraded and upgraded

This chart shows credit upgrades and downgrades in the municipal bond market since January 2022 and the ratio between them. That’s a measure of credit health in the municipal market. In recent months, upgrades have exceeded downgrades, and in May, the rolling three-month ratio ended at 1.7. — **Source:** Bloomberg Intelligence, as of May 20, 2024.

Tax exempt portfolio positioning

Exposure	View	Strategy
Credit allocation	A technically supportive environment favors an overweight to credit overall. With outflows from short-term funds and demand for longer funds, spreads over AAA municipals are most attractive in the short end of the curve.	Maintain exposure in sectors like housing and prepaid gas. Selectively add exposure in sectors with negative headlines (e.g., universities). Primary markets are screening rich, so we use more secondary markets. Heavy focus on valuations in conditions where many investors are simply attempting to maximize yield.
Structure	A historically diverse range of coupons and higher yields places convexity management front and center for risk management and alpha opportunity.	Underweight 4% coupons. Overweight lower coupons for upside, and overweight 5% coupons.
Duration/curve	Without any clear dislocation of municipal yields, look to use duration primarily as a credit hedge. Valuations in higher-rated bonds are historically rich up to 10-year maturities because of SMA buying.	Overweight duration proportionate to risk contribution from credit exposure. Barbell curve positioning, with heavier exposures in cash and 12–15-year bonds to take advantage of roll-down effects into SMA demand.

Vanguard active bond funds and ETFs

Vanguard active bond funds and ETFs	Admiral™ Shares or ETF ticker symbol	Expense ratio¹
Treasury/ Agency
GNMA²	VFIJX	0.11%
Inflation-Protected Securities	VAIPX	0.10
Intermediate-Term Treasury	VFIUX	0.10
Long-Term Treasury	VUSUX	0.10
Short-Term Federal	VSGDX	0.10
Short-Term Treasury	VFIRX	0.10
Investment-grade corporate
Core Bond	VCOBX	0.10%
Core Bond ETF	VCRB	0.10
Core-Plus Bond	VCPAX	0.20
Core-Plus Bond ETF	VPLS	0.20
Intermediate-Term Investment-Grade	VFIDX	0.10
Long-Term Investment-Grade²	VWETX	0.12
Multi-Sector Income Bond	VMSAX	0.30
Short-Term Investment-Grade	VFSUX	0.10
Ultra-Short-Term Bond	VUSFX	0.10
Ultra-Short Bond ETF	VUSB	0.10
Below-investment-grade
High-Yield Corporate²	VWEAX	0.13%
Global / international
Emerging Markets Bond	VEGBX	0.40%
Global Credit Bond	VGCAX	0.25

Vanguard active municipal bond funds	Admiral™ Shares or ETF ticker symbol	Expense ratio¹
National municipal
Ultra-Short-Term Tax-Exempt	VWSUX	0.09%
Limited-Term Tax-Exempt	VMLUX	0.09
Intermediate-Term Tax-Exempt	VWIUX	0.09
Long-Term Tax-Exempt	VWLUX	0.09
High-Yield Tax-Exempt	VWALX	0.09
State municipal
California Intermediate-Term Tax-Exempt	VCADX	0.09%
California Long-Term Tax-Exempt	VCLAX	0.09
Massachusetts Tax-Exempt³	VMATX	0.13
New Jersey Long-Term Tax-Exempt	VNJUX	0.09
New York Long-Term Tax-Exempt	VNYUX	0.09
Ohio Long-Term Tax-Exempt³	VOHIX	0.13
Pennsylvania Long-Term Tax-Exempt	VPALX	0.09

Active fixed income team

Active fixed income research team

Sara Devereux

Global Head of Fixed Income Group

Sara Devereux

Global Head of Fixed Income Group

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

Senior Investment Specialist—Active

Dan Larkin

Senior Investment Specialist—Active

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

Senior Investment Specialist Active Fixed Income

Nathaniel Earle

Senior Investment Specialist Active Fixed Income

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.

Active fixed income at Vanguard

$222B

Taxable bond AUM
19 funds/ETF⁴

$185B

Municipal bond AUM
5 national funds/7 state-specific funds

25+

Portfolio managers

35+

Traders

60+

Credit research analysts

130+

Dedicated team members

Note: Data as of June 30, 2024.

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

Bonds of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.

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. U.S. government backing of Treasury or agency securities applies only to the underlying securities and does not prevent share price fluctuations. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest.

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.

Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

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