For much of the past decade, fixed income felt like an afterthought. Ultra-low interest rates meant bonds offered little income and even less value. Then came 2022—when bond prices finally cracked under the weight of distorted valuations. Even now, many investors in broad bond indexes are still waiting to break even.
But market conditions have changed. Yields are meaningfully higher. Credit spreads are widening. Inflation and growth expectations are diverging. And yet, many investors still hold their fixed income exposure the same way they did five years ago—passively and without adjustment.
Today, that hands-off approach may be leaving opportunity on the table.
Passive fixed income strategies aren’t built to navigate shifting risk dynamics, structural imbalances, or evolving credit conditions. Rather, they are built (well) to provide broad access and low-cost exposure to the bond market by tracking an index. Passive is a misnomer. Even though you’re passively following the index, you’re actively making a big decision—to invest in the entire bond market, exactly as it is. That is an investment decision, whether you acknowledge it or not.
“Passive” = loan to everybody. “Active” = loaning on your terms.
We believe that today’s bond market demands more reason to lend on our terms. We believe it demands more flexibility and precision.
What We’re Seeing
Yields are attractive—but uneven.
We’re seeing plenty of 4–5% yields again, but they’re not all created equal. Some come from high-quality issuers with strong fundamentals. Others come from credits on shakier ground. An active approach allows us to lean into quality and avoid risk that isn’t being properly compensated.
Inflation isn’t gone—and the risk of its return remains.
Inflation pressures have eased but not vanished. Long-term expectations remain anchored below 2.3%, which keeps Treasury Inflation-Protected Securities (TIPS) attractively priced. Active managers can selectively incorporate inflation hedges when conditions favor them—and step back when they don’t.
Credit spreads are widening—selectively.
The market is no longer treating credit risk as free. The spread between Treasurys and high-yield debt has increased materially since February. But the real opportunities lie in the nuances—across sectors, ratings, and individual issuers. Active strategies can isolate value and sidestep trouble.
The yield curve is distorted.
Unlike in prior cycles, long-term real yields have risen materially—even as short-term rates remain elevated. This creates a rare window to lock in durable, after-inflation income. But it takes a discerning lens to find the best entry points across the curve.
Liquidity and pricing matter again.
As volatility returns to fixed income markets, so does the importance of managing liquidity and execution. Passive funds rebalance mechanically. Active strategies can respond with judgment—protecting capital and taking advantage of mispricing when others are constrained.
The Bottom Line
Fixed income is working again (read Neil Rose’s Bonds Have a Place Again, Part II)—but it’s not a market to approach passively.
Passive strategies still have a place, especially for efficient, diversified exposure. But in today’s environment of rising dispersion, evolving inflation dynamics, and changing policy signals, an actively managed fixed income strategy can offer a clearer path to managing risk and capturing opportunity.
The market isn’t simple. Conditions aren’t static. This is when a steady, informed hand can make a meaningful difference.
The bond market is back. But this time, it rewards those who are paying attention.
