Fixed income is still in a “golden era” with the potential for investors to build high-quality, low-volatility portfolios with less risk, but this window will eventually close as rates start to decline later this year, says BlackRock’s latest quarterly fixed-income report.
But for now, “The opportunity today is unusually attractive, supported by starting yields that remain in the top third of their long-term ranges across both U.S. and European investment grade markets, especially in securitized products,” it said in the report released Tuesday. “Income did its job in 2025; the conditions for a repeat are still in place.”
Just as it did in a fixed-income report last fall, the asset manager makes a case for selectivity and an active approach to find the best opportunities, which it said are under-represented on traditional aggregate benchmarks, it said.
“Many of the markets offering the best income, diversification and structural advantage — securitized assets, global corporates, EM hard and local currency debt, private-credit-adjacent sectors — remain only partially captured in benchmark-heavy allocations,” the report said. “And while benchmarks are evolving, access to these ‘plus’ sectors still requires intentional and skilled portfolio construction, not reliance on traditional indices.”
With central banks no longer moving in “lockstep,” and diverging global policy paths making for more rate volatility than in the past, BlackRock says “differentiated opportunities” have opened up. European credit, for example, attracted record investor inflows last year as inflation eased, EU economies proved resilient to tariff threats, and real rates rose to just under 2% from years of near-zero or negative levels.
Deteriorating sovereign balance sheets across the G7 nations since the financial crisis, and improving corporate fundamentals, have BlackRock looking for opportunities in credit spreads over duration, although spreads remain tight in higher quality credit.
Among corporates, technological change and particularly the adoption of AI is likely to accelerate a differentiation between winners and losers within and across sectors, the report said. “In this context, staying invested continues to make sense, particularly for active managers able to distinguish between improving and deteriorating credit profiles.”
The ability to do so, it said, “requires deep research, robust risk management and the flexibility to reposition as policy and macro conditions evolve.”
As for the U.S. market, it said flashing-red labour market indicators — and not inflation or GDP growth — is the signal to pay attention to. Job growth has been “anemic,” with health care accounting for most of the gains and broad-based labour (and young people especially) not participating in otherwise strong economic growth, it said.
BlackRock expects the Fed to cut “at least” twice this year to shore up the labour market.
It also noted that as rates have fallen, a steepening yield curve “finally” means holding bonds generates more income than cash.
“For 2026, that income advantage is likely to mean another year of bonds beating cash, reversing the post-Covid trend of underperformance.”