Displaying items by tag: bonds

The Fed’s latest 25 basis point rate cut was widely expected, but uncertainty lingers over how aggressive or conservative future policy will be. While the Fed currently projects only one cut in 2026, that could shift depending on economic data, leaving investors cautious on yield. 

This makes high yield municipal bonds an option worth considering, given their tax advantages and potential return relative to corporates. An active fund like the Invesco Rochester High Yield Municipal ETF (IROC) offers exposure with a 30-day SEC yield of 4.69% and a 12-month distribution rate of 4.43%. 

Active management is key in this space, as it allows portfolio managers to adapt holdings to evolving conditions and manage risk. 

Finsum: Taking an active approach when you can see the macro uncertainty start to creep up is a good strategy in fixed income. 

Expectations of rate cuts have weighed on the dollar, boosting international stocks and bonds and driving flows into global and emerging-markets bond funds. For investors who want both U.S. and international exposure, the Vanguard Total World Bond ETF (BNDW) offers a nearly even split between domestic and global bonds, with a low 0.05% expense ratio. 

Those who prefer a purer international allocation might look to the Vanguard Total International Bond ETF (BNDX), which focuses on investment-grade developed markets and carries just 7% emerging-markets exposure. 

Investors willing to take on more risk for higher yield can consider the Vanguard Emerging Markets Government Bond ETF (VWOB), which tracks U.S.-dollar-denominated EM government debt. VWOB’s expense ratio is higher at 0.15%, but its 30-day SEC yield of 5.88% may appeal to income seekers. 

Finsum: These funds provide tools to diversify fixed-income portfolios beyond U.S. bonds while balancing risk and return.

Bond funds delivered modest results last year, with the average fund returning 4.8%, though nearly all finished in positive territory. Surprisingly, high-yield and emerging-market bond funds dominated the top performers, buoyed by strong global growth and favorable currency trends despite an inverted yield curve. 

Their outperformance suggests a speculative tone in markets, as riskier assets typically lag when investors grow cautious about the economy. However, higher volatility weighed on their ratings, leaving most of the top 20 funds with only “hold” grades, except for Delaware Pooled Trust High-Yield, which earned a B-minus.

In contrast, lagging funds saw declines in principal value, weak dividend payments, and overall “sell” ratings, with inflation-protected funds failing to meet expectations. 

Finsum: The divide highlights how chasing yield in riskier segments delivered gains last year, while traditionally safer strategies struggled to keep up.

Amid inflationary pressures and monetary uncertainty, investors have increasingly turned to short-duration U.S. Treasury bonds to protect income and reduce interest rate risk. With maturities under five years, these bonds are less sensitive to rate hikes than longer-term securities, making them a defensive yet reliable option in volatile markets. 

The narrow yield spread between the 10-year and 2-year Treasuries highlights how long-term bonds are more exposed to macroeconomic swings, while short-duration bonds remain anchored to Fed policy. 

Active management has further boosted performance, with funds like the Calvert Short Duration Income Fund (CDSRX) and iShares Short Duration Bond Active ETF (NEAR) outperforming peers by tactically adjusting credit quality and duration. Recent results show that actively managed short-duration funds have not only delivered weekly gains but also produced strong risk-adjusted returns, particularly in high-yield segments. 

Finsum: As the Fed holds a cautious stance on rate cuts, short-duration strategies stand out as both an income generator and a stabilizer within diversified portfolios.

Tariff-related market volatility in 2025 highlighted the stabilizing role of fixed income, as broad bond indexes delivered 4% to 7.25% returns in the first half of the year, largely from higher coupon income. The April tariff announcement initially triggered a sharp sell-off in risk assets, but bonds held steady, underscoring their resilience compared to equities. 

While the most extreme tariff scenarios have been avoided, a projected U.S. weighted average tariff rate of around 12% is still expected to influence inflation, growth, and interest rate paths. Higher yields now provide a stronger income cushion than in prior years, reducing the downside impact of rising rates and enhancing potential returns if rates fall. 

Active fixed income ETFs can be especially well-suited for this environment, as managers can tactically adjust duration, credit quality, and global exposure to navigate tariff-driven market shifts. Investors are finding opportunities in high-quality bonds and global fixed income as hedges against policy-driven uncertainty.

Finsum: Tariffs remain a key macroeconomic variable shaping strategy, even in a more moderate form than initially proposed.