Fixed Income Perspectives: Rethinking Higher Rates in a Resilient Economy

Higher rates in 2026 reflect a resilient economy more than an intensifying inflation shock, making diversified fixed-income exposure more attractive than a single-rate scenario.

• Compared with the 2022 peak, headline PCE inflation has fallen from 7.1% to 3.4%, wage growth from 5.9% to 3.0%, while the starting fed funds rate has risen from about 0.0% to about 4.0% as of September 2026.
• Growth has surprised on the upside despite higher rates and energy prices, with AI-related investment in software, power facilities, data centers, and computer equipment helping support GDP; however, a slowdown in AI spending could reverse the recent rise in yields.
• A hypothetical portfolio starting at a 5.44% yield and 5.8-year duration would generate total returns of 15.04% if rates fell 200 basis points, 10.24% if they fell 100 basis points, -0.36% if they rose 100 basis points, and -6.16% if they rose 200 basis points.
• Voya expects U.S. growth to remain above trend through high-income consumer spending and AI investment, but projects unemployment to rise toward roughly 4.5% and warns that oil prices, tighter financial conditions, and weaker AI capex could create downside risks.
• The firm is neutral or negative on investment-grade and high-yield corporate bonds because valuations are tight, constructive on senior loans with an up-in-quality bias, modestly positive on agency mortgages, positive on mortgage credit and consumer ABS, mixed on CLOs, and neutral on emerging-market hard-currency debt.
• Within credit, Voya favors selected hybrids, BBBs, banks, utilities, TMT and AI-capex beneficiaries, durable high-yield businesses, low-BB to mid/high-B risk, Latin American debt, and BBB/BB emerging-market quality, while avoiding vulnerable cyclicals, CCCs, and structurally challenged media, telecom, technology, transportation, and energy issuers.

Takeaway: Investors should not treat higher yields as a repeat of 2022; income now provides a cushion across multiple growth and rate outcomes, but positioning should remain diversified and selective because valuations are tight and AI- and labor-market-related growth risks could still drive yields lower.