Top 5 fixed income ideas for 2026

Supported by high carry, tighter spreads, and accommodative monetary policy, fixed income markets delivered strong total returns in 2025. Many developed market central banks are now approaching the end of their easing cycles, but with yields remaining mostly elevated, we believe fixed income markets still offer many compelling opportunities. Fiscal stimulus, AI investment, and financial market deregulation are poised to support stronger growth in 2026, which ought to bolster spread sectors, though shifting tariff policies and questions about Federal Reserve independence add complexity to the inflation outlook. We acknowledge the risks and imbalances that have developed: a K-shaped consumer divide, struggling manufacturing, still-sticky inflation, and elevated policy uncertainty. But we expect bouts of volatility to create attractive entry points for sector rotation and security selection.

With that backdrop, we’re pleased to share our top five fixed income ideas for 2026:

1. Unconstrained fixed income: We continue to believe that total-return fixed income strategies unconstrained by benchmarks are best positioned to navigate the later stages of the economic and credit cycle, which we expect to be punctuated by episodes of volatility. Central banks are charting divergent policy paths, which can create dispersion in growth and inflation, and increase the likelihood of market dislocations. Fiscal stimulus and other tailwinds noted above keep the backdrop constructive, but elevated valuations across most sectors mean success will likely hinge on selectivity and discipline.
   
   In our view, investors should maintain a moderately defensive posture, emphasizing securities with favorable upside/downside profiles, strong structures, and resilient fundamentals. Nimbleness remains critical: Sizable allocations to liquid assets such as cash and developed market government bonds can provide flexibility to capitalize on dislocations. Patience and precision are likely to be rewarded, as disciplined searching can uncover genuine opportunities even when broad valuations appear tight.
   
   Portfolio usage: Diversification, liquidity, derisking, total return
   Funding from: Cash or derisking from equities/credit
   
   
2. Investment-grade private credit: We maintain a constructive view on investment-grade private credit, positioning it as a strategic complement to traditional fixed income allocations. The asset class continues to deliver attractive illiquidity premiums, providing meaningful relative value in a market where spread opportunities remain constrained. Strong covenant protections and bespoke structuring enhance downside resilience against the risk of exuberance we see in certain segments of the private credit market, while robust deal flow across sectors and geographies supports diversification and portfolio stability.
   
   Importantly, private credit offers investors the ability to negotiate terms tailored to their risk and return objectives, creating potential opportunities for incremental spread capture and improved risk-adjusted outcomes. Today’s evolving credit environment calls for disciplined underwriting and experienced managers with deep sourcing networks who are well positioned to navigate complexity and deliver consistent performance. Provided these conditions are met, investment-grade private credit stands out as an appealing solution within the broader fixed income landscape for long-term investors seeking enhanced yield and structural protections without sacrificing credit quality.
   
   Portfolio usage: Income, diversification
   Funding from: Investment-grade public credit, private direct lending
   
   
3. Securitized credit: We hold a constructive view on securitized credit, seeing it as a valuable source of diversification and income within multisector fixed income portfolios. Despite tighter spreads across most credit markets, securitized sectors continue to offer attractive yields relative to investment-grade corporates, supported by structural protections and shorter spread durations that can help cushion against volatility. Fundamentals have been normalizing from strong levels, with performance expected to vary by subsector and borrower type, making security selection critical. We see opportunities in areas such as seasoned non-agency residential mortgage-backed securities (RMBS), higher-quality consumer asset-backed securities (ABS), and select commercial mortgage-backed securities (CMBS) segments, while collateralized loan obligations (CLOs) remain supported by resilient bank-loan fundamentals. Importantly, securitized credit provides exposure to distinct economic drivers — consumer, housing, and commercial real estate — potentially reducing correlation with traditional corporate credit and enhancing portfolio resilience in an uncertain macro environment. Clients can use traditional public markets for this exposure or seek private-market exposure through the growth of asset-backed finance (ABF) or exposure via lending into commercial real estate transactions. For the latter, we currently favor transitional real estate deals that seek to take advantage of the large-scale shifts happening within the commercial real estate sector.
   
   Portfolio usage: Income, total return
   Funding from: High-quality fixed income and/or corporate credit exposure
   
   
4. CLO Equity: While we acknowledge that the near-term CLO arbitrage rate remains tight, we view CLO equity as an attractive intermediate to long-term investment opportunity, supported by two rare and meaningful regulatory tailwinds. In the US, recent guidance easing leveraged lending constraints could allow banks to re-enter the broadly syndicated loan market, increasing loan supply and potentially widening spreads at a time when M&A activity is expected to pick up. This shift may also reintroduce higher-risk borrowers into syndicated markets, which requires disciplined credit selection. Risks are tempered by the bank loan market’s solid credit quality, as direct lending has absorbed much of the higher-risk segment. Meanwhile, in Europe and possibly the UK, proposed regulatory changes are set to make senior tranches more appealing — particularly for insurers — by reducing capital charges and streamlining due diligence requirements. Stronger AAA demand would lower CLO funding costs, improving equity returns over time. While each of these dynamics will take years to fully materialize and require careful credit selection, the combination of greater loan supply, more attractive spreads, and reduced financing costs positions CLO equity for attractive forward return potential in a changing market landscape. We view the opportunity as attractive, assuming no severe default cycle, given the potential for spread volatility to enhance forward returns. The structure’s non-mark-to-market, non-recourse liabilities may allow investors to capitalize on spread widening to the benefit of the equity component.
   
   Portfolio usage: Income, total return
   Funding from: Equities, high yield
   
   
5. Capital securities: In our view, hybrid instruments such as cumulative preferreds, convertible bonds, AT1s, and junior subordinated debt offer an appealing risk/reward profile for investors seeking both income and diversification. These securities combine equity-like structural features with bond-like cash flows, resulting in yields that are typically well above those of senior bonds and traditional subordinated debt. This premium compensates for their subordinated position in the capital structure, and the nuanced terms allow issuers to achieve regulatory or ratings-agency capital benefits without diluting common shareholders. The market for capital securities remains relatively inefficient and often overlooked, creating opportunities for disciplined investors to capture attractive income and total-return potential. Additionally, these instruments can provide meaningful diversification benefits versus core corporate credit, as their performance drivers are often distinct from those of traditional bonds. For tax-sensitive investors and those focused on optimizing returns relative to underlying credit ratings, capital securities can be a particularly attractive addition to a well-constructed portfolio.
   
   Portfolio usage: Total return, diversification
   Funding from: Equities, high yield