Active Fixed Income Perspectives Q3 2026: Finding higher ground

Higher yields and resilient economic conditions make fixed income attractive for income and diversification, but investors should stay neutral on duration and selective in credit.

• U.S. growth remains solid: AI-related investment contributed more than half of GDP growth in the first quarter, while inflation stays above target and labor-market loosening is expected in the second half of 2026.
• The Federal Reserve is expected to hold rates steady in July, although markets price one to two hikes and the 10-year Treasury yield is expected to trade between 4.25% and 4.75% in the near term.
• Credit fundamentals remain strong, with investment-grade issuance exceeding $1.2 trillion in the first half of 2026; approximately one-quarter was linked to AI investment, and hyperscalers represented 13% of corporate bond issuance through June 30.
• Meta, Google, Microsoft, Amazon, Oracle, and SpaceX are becoming frequent bond issuers to finance AI infrastructure, while data-center operators are issuing debt across investment-grade, high-yield, and securitized markets.
• Tight spreads limit the scope for further compression, so credit returns should increasingly come from carry and issuer selection; Vanguard remains overweight credit and favors the front end and belly of the taxable curve, while seeing better value in long-dated municipal bonds.

Takeaway: Investors can use higher yields for income and portfolio ballast, but should maintain neutral duration, favor selected credit exposures, and expect market volatility because inflation, employment, and Fed policy remain data dependent.