Today’s higher yields continue to make a compelling case for fixed income, but broad bond exposure may not be enough. In this quarter’s Fixed Income Outlook, BlackRock’s active fixed income investors explain why income, selectivity and flexible portfolio construction matter as changing economic and policy dynamics reshape markets in the second half of 2026.
Fixed Income Outlook
Key takeaways
01.
Income still does the heavy lifting
Higher yields continue to create compelling income opportunities, but capturing them requires a more selective approach to duration, credit, sectors and regions.
02.
Selectivity matters more
As dispersion increases across regions, sectors and issuers, disciplined security selection and flexible portfolio construction are becoming more important drivers of returns.
03.
Old assumptions, new markets
As markets rely less on central bank guidance and more on fundamentals, investors may need to rethink how they assess data, policy, risk premiaand portfolio resilience.
What’s driving bond markets today
Higher yields continue to make fixed income attractive, but the opportunity is becoming more selective. As growth, policy and inflation dynamics become more differentiated, investors may need to rethink how they capture income, remain flexible and be more deliberate about where they take risk.
Today's higher yields continue to support fixed income, but growth is becoming more concentrated as markets rely less on central bank guidance. As outcomes become more differentiated across regions, sectors and issuers, broad market exposure alone may not be enough. Income remains the primary return driver, but portfolio construction, security selection and disciplined risk-taking are becoming increasingly important.
“Markets have benefited from a narrow set of powerful themes, but the next phase is likely to require greater precision in how risk is allocated and where opportunities are sourced."
Rick Rieder Chief Investment Officer of Global Fixed Income, BlackRock
CIO perspective: A more deliberate approach to fixed income
Higher yields remain compelling, but narrowing growth and evolving Fed policy are changing how investors should allocate risk.
Why it matters
Income remains the primary return driver, but differentiated markets increasingly reward disciplined portfolio construction and security selection.
Key points
- Growth remains resilient but is becoming more narrowly driven.
- Higher yields continue to support compelling income opportunities.
- Fed policy is becoming less prescriptive and more data-driven.
- Differentiated markets reward selective risk-taking.
- Portfolio construction matters more than broad market exposure.
Systematic view: Markets beyond the Fed
As markets rely less on central bank guidance, investors may need to rethink how they assess data, policy and risk premia.
Why it matters
Markets may increasingly reward investors with the ability to interpret economic data rather than anticipate the Fed's reaction function.
Key points
- The Fed is entering a new operating regime with important implications for investors.
- Traditional and increasingly alternative economic data may play a growing role in forecasting interest rates.
- Recent web-based inflation data suggest goods inflation is moderating in real-time.
Modernizing core allocations
Higher yields create new opportunities, but investors may need to rethink how they build core fixed income portfolios.
Why it matters
Capturing today's opportunities increasingly depends on flexible implementation and portfolio construction.
Key points
- U.S. rates may offer a more attractive starting point.
- Carry remains compelling despite tighter spreads.
- Security selection drives a greater share of returns.
- Securitized assets provide income and diversification.
- Modernize core allocations to capture a broader opportunity set.
European credit: yield matters more than spread?
Higher yields make income more important, encouraging investors to look beyond spread compression.
Why it matters
Attractive starting yields may allow investors to earn stronger returns without relying on tighter spreads.
Key points
- Income matters more than further spread compression.
- European credit fundamentals remain resilient.
- Financials continue to offer attractive opportunities.
- AAA-rated CLOs provide attractive risk-adjusted income.
- Fixed maturity strategies lock in elevated yields.
Emerging markets: Resilience beyond the shock
Resilient fundamentals may encourage investors to revisit emerging markets despite continued geopolitical uncertainty.
Why it matters
A more stable backdrop may reward selective positioning across local rates, currencies and sovereign debt.
Key points
- EM local markets remain well positioned.
- Several EM currencies remain undervalued.
- Oil-importing economies should benefit from improving fundamentals.
- Hard currency sovereigns offer selective value.
- Dispersion favors active positioning.
Asia's differentiated opportunity set
Investors may benefit from looking beyond benchmarks as domestic fundamentals increasingly shape Asian fixed income.
Why it matters
Broader diversification can improve resilience as Asian markets become more differentiated.
Key points
- Chinese government bonds remain a low-volatility anchor.
- Domestic fundamentals increasingly drive market outcomes.
- Benchmark allocations overlook much of Asia's opportunity set.
- Diversification matters more in fragmented markets.
- Carry remains the primary return driver.
Top investor questions for the Q3 Fixed Income Outlook
Authors
Rick Rieder
CIO of Global Fixed Income – BlackRock
Tom Parker, CFA
Managing Director, Chief Investment Officer of Systematic Fixed Income
Jeffrey Rosenberg, CFA
Senior Portfolio Manager, Systematic Fixed Income
Chi Chen
Senior Portfolio Manager in Global Fixed Income
James Turner
Managing Director, leads Global Fixed Income for the EMEA region
Jose Aguilar
Head of European Credit
Michel Aubenas, CFA
Head of Emerging Market Debt
Navin Saigal
Head of Global Fixed Income, Asia Pacific
General disclosure: This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The opinions expressed are as of July 2026 and are subject to change without notice. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks. This information is not intended to be complete or exhaustive and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. This material may contain estimates and forward-looking statements, which may include forecasts and do not represent a guarantee of future performance.
RISKS
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets, failed/delayed delivery of securities or payments and sustainability-related risks.
Fixed income securities issued or guaranteed by government entities in emerging markets generally experience higher ‘Credit Risk’ than developed economies.
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