The decade following the global financial crisis was, in retrospect, an extraordinary period for fixed income — extraordinary not for its returns, but for its distortions. Negative real yields in developed markets, compressed spreads across virtually all credit categories, and a persistent hunt for yield that pushed investors into instruments they did not fully understand.
That era is over. The repricing has been sharp, and in many cases painful. But it has also restored fixed income to its proper role in a diversified portfolio.
What Has Changed
The mechanics are familiar: higher base rates mean higher all-in yields. A 5% yield on investment-grade corporate debt was essentially unavailable for much of the 2010s. It is now accessible without reaching into high-yield territory or taking meaningful duration risk.
The more important change is behavioral. When fixed income offered 0–2%, the opportunity cost of holding bonds was high. Capital migrated toward equities, private assets, and illiquid alternatives to compensate. That migration inflated valuations across risk assets and suppressed volatility in ways that made portfolios appear safer than they were.
Higher rates reverse this dynamic. Fixed income can now serve as a genuine ballast — providing income, managing duration risk, and offering rebalancing optionality when equity markets correct.
Duration Management
The key question for fixed income allocators today is not whether to own bonds but where on the curve to be positioned.
Our current framework leans toward:
- Intermediate duration (3–7 year) in high-quality credit, where yield pickup versus short-dated paper is meaningful and interest rate sensitivity is manageable
- Floating-rate exposure in private credit and leveraged loan categories, where rising-rate environments pass through directly to coupon income
- Selective long-end exposure only where conviction on the rate trajectory is high — a standard we apply rigorously
Duration is not risk in the abstract. It is a specific bet on the interest rate path. We want to be paid adequately for that bet or not make it.
Credit Quality in a Higher-Rate World
One underappreciated consequence of the rate cycle: credit differentiation has returned. During the zero-rate era, the difference between B-rated and BB-rated borrowers was almost irrelevant in spread terms. Today, the difference in financing cost between a well-capitalized borrower and an overleveraged one is substantial — and growing.
This is healthy for markets and important for credit selection. Companies that managed their balance sheets conservatively through the low-rate period now have a material structural advantage. Those that levered up aggressively are facing refinancing challenges that will not resolve easily.
Credit selection, in other words, matters again. This is a better environment for fundamental credit investors than anything we have seen since 2008.
We are happy to discuss our current fixed income and private credit positioning with qualified investors. Reach out to begin the conversation.