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Understanding the roles of fixed income

Income and stability in changing markets.

February 2026

Over the past decade, we’ve faced market volatility, soaring interest rates, and recession risks. Despite these shifts, the roles of fixed income remain the same. Here are ways it can help you achieve your goals, both today and long term.

Dependable income

Income, including the tax‑free income potential that certain fixed income strategies afford, is essential to fixed income returns. In fact, income has been the primary driver of total returns for the major fixed income categories.

The stability, defense, and consistent income that fixed income may be able to offer can make a huge difference for investors who know how to use it.

Income—not price—drove fixed income returns1

(Fig. 1) Income returns vs. price returns (12/31/07 to 12/31/25)

  Percent Gain From Income Price Return/Sector Income Return Total Return
Global Aggregate 103% -0.08% 2.48% 2.41%
U.S. TreasuryU.S. Treasury 105 ‑0.22 4.47 4.26
Bank Loans2 106 ‑0.11 2.01 1.90
U.S. IG Corporates 107 ‑0.48 7.22 6.74
U.S. Aggregate 107 ‑0.20 3.20 2.99
U.S. High Yield 112 ‑0.62 6.00 5.35
Municipals 112 ‑0.61 5.81 5.20
Emerging Markets 126 ‑0.91 4.37 3.46
U.S. Short‑Term Gov’t./Credit 137 ‑0.63 2.33 1.70

Past performance cannot guarantee future results. All investments are subject to market risk, including the possible loss of principal. Index performance is for illustrative purposes only and is not indicative of any specific investment. Investors cannot invest directly in an index. Tax‑free income is the income received that is not subject to federal income taxes. Some income may be subject to state and local taxes and the federal alternative minimum tax.
1 Sources: T. Rowe Price; “Emerging Markets” represents the J.P. Morgan Corporate Emerging Market Bond Index Broad Diversified Index; “U.S. Aggregate” represents the Bloomberg U.S. Aggregate Bond Index; “Global Aggregate” represents the Bloomberg Global Aggregate Index; “Municipals” represents the Bloomberg Municipal Bond Index; “U.S. Treasury” represents the Bloomberg U.S. Treasury Index; “U.S. High Yield” represents the Bloomberg U.S. High Yield Index; “Bank Loans” represents the S&P/LSTA Performing Loan Index; “Treasury inflation protected securities” (TIPS) represents the Bloomberg U.S. TIPS Index; “Short Duration Bonds” represents the Bloomberg 1–3 Year U.S. Government/Credit Bond Index; and “Global High Yield” represents the ICE BofAML Global High Yield Index Hedged to USD.
2 Bank loan index data are only available from 12/31/14 to 12/31/25. Sources: S&P and Bloomberg.

Portfolio stability

To limit the impact of equity volatility and help buffer equity downturns, investors can choose core fixed income strategies that track the Bloomberg U.S. Aggregate Bond Index or flexible multi‑sector strategies with slightly higher risk.

Core fixed income has helped buffer equity volatility1

(Fig. 2) U.S. bond correlations amid major equity downturns
Line chart shows how core fixed income has helped buffer equity volatility since 2004.

From 12/31/03 to 12/31/25.
1 Sources: T. Rowe Price; “U.S. Aggregate” represents the Bloomberg U.S. Aggregate Bond Index. 

Seek to mitigate the impacts of inflation and interest rate risk

Bank loans and short duration bonds have helped mitigate the impacts of inflation and interest rate risk, especially when core bonds significantly underperformed.

Certain sectors delivered positive returns1

(Fig. 3) Recent period of unusually high inflation and rising interest rates
Bar charts shows how certain sectors delivered positive returns during period of sustained inflation and rising rates.

From 3/31/21 to 11/30/22. Cumulative performance from 3/31/21 through 11/30/22 when headline inflation and 10‑year Treasury yields were both positive year over year.
1 Sources: T. Rowe Price; “U.S. Aggregate” represents the Bloomberg U.S. Aggregate Bond Index; “Bank Loans” represents the S&P/LSTA Performing Loan Index; and “Short Duration Bonds” represents the Bloomberg 1–3 Year U.S. Government/Credit Bond Index.

Feb 2026 Article

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Additional Disclosure

For U.S. investors, visit troweprice.com/glossary for definitions of financial terms.

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Important Information

All investments are subject to market risk, including the possible loss of principal. Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall. Index performance is for illustrative purposes only and is not indicative of any specific investment. Its performance does not reflect the expenses associated with the active management of an actual portfolio. It is not possible to invest directly in an index.

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types; advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

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