Dispersion drives opportunity in fixed income

Key points

• Differences in yield movements, modest credit spread widening from cycle lows and evolving rate expectations have resulted in more pronounced performance dispersion across fixed income sectors.  

• Elevated starting yields and coupon income have helped cushion returns despite valuation headwinds, reinforcing fixed income’s role as both an income source and portfolio stabiliser. 

• In an environment defined by dispersion, outcomes increasingly depend on disciplined security selection across rates and credit rather than broad beta exposure.  

New risks pose rising macro threat

Global markets have so far proved resilient in the face of rising geopolitical risk - but higher energy prices are an increasing threat to both growth and inflation. During the first quarter, global bond yields moved higher, though unevenly across regions, reflecting differences in both perceived inflation risks and central bank reaction functions.  

• While the largest moves were driven by shifting interest rate expectations, credit spreads also widened modestly from cycle lows.   

• This caused performance across fixed income sectors to become increasingly differentiated, creating a broader set of opportunities for active investors.  

Higher yields continue to do their job

Despite higher yields and modestly wider spreads, strong starting yields across much of the bond market continued to support investor outcomes during the quarter. Coupon income helped offset valuation headwinds, leaving total returns for global bonds down just 15 basis points over the quarter in dollar terms ¹ .

This income cushion highlights a key structural shift: higher yield levels are restoring the role of fixed income as both a source of income and a stabilising force within portfolios, even during periods of macro uncertainty.

Positioning for a more selective environment

Fixed income markets are increasingly defined by dispersion across regions, yield curves, sectors and issuers. While higher yields and income are providing valuable insulation against volatility, the macro backdrop remains fluid, with energy prices acting as a key swing factor for growth, inflation and policy.  

Rising uncertainty is increasing dispersion and opportunity in credit

Source: Macrobond as at 9 April 2026.

In this environment, security selection matters. For investors, the opportunity lies not in broad beta exposure, but in careful positioning across rates and credit, with an emphasis on quality and disciplined risk management.

Go deeper with our latest analysis

Explore the latest analysis, views and positioning across rates and credit markets from our team of global fixed income experts in Active Fixed Income Perspectives: Dispersion drives opportunity.

Inside the report:  

• In-depth analysis of key drivers in global bond markets in Q1

• Key opportunities and risks across rates and credit

• Our outlooks and monetary policy expectations

• Portfolio positioning and active strategy considerations

¹ Source: Bloomberg Global Aggregate Index, as at 31 March 2026. These performance figures are calculated in USD (hedged) and returns may increase or decrease as a result of currency fluctuations.