The 2022 bear market lifted yields to levels not seen for more than a decade, positioning fixed income markets—particularly the higher-yielding sectors—for solid, long-term returns. That backdrop remains, as do the uncertainties that will rattle markets over the near term. Bottom line: Bonds are positioned for solid returns, and they should outperform cash and equities if serious downside risks materialize.

With the markets finely balanced between conflicting forces of monetary and fiscal policies, geopolitical tensions, and tariffs, performance dispersion across yield curves and credit sectors has ranged widely from positive to negative returns. The dispersion indicates that just buying bonds won’t do; success will hinge more than ever on buying the right bonds in the right maturities and market sectors.

As participants struggle to map their course amidst the cascade of headlines, markets have been prone to dramatic overreactions and course corrections. The lesson for investors is clear: don’t confuse extreme market movements with changes in fundamentals. Rely on research and analysis to distinguish the market spasms from true changes in underlying value, and capitalize on reversions back to fundamentals.