Looking for income? Four bond solutions to consider

Investors continue to face a range of market and economic challenges, including political uncertainty, persistent inflation, high fiscal deficits, and ongoing geopolitical tensions. These factors may fuel bouts of volatility and be challenging to navigate, but the good news is that investors can potentially generate an attractive income stream from bonds as yields remain elevated.

"...bonds may also help investors achieve specific objectives within their asset allocation construct...."

Another key benefit of a fixed income allocation is the diverse range of options on offer. This means that, in addition to potential income generation, bonds may also help investors achieve specific objectives within their asset allocation construct, such as stability, growth, or diversification.¹ In this piece, we are delving into the characteristics of four different bond solutions and how they align with distinct investment goals.

Four bond approaches to help meet different investor needs

1. Government bond approach

Government bonds may appeal to investors seeking a stable income stream, liquidity, and a defensive anchor for their portfolios. In recent years, however, the defensive qualities of government bonds have been called into question, as fixed income and equity markets have tended to move in tandem. While correlations² between the asset classes could continue to be volatile, if an extreme market event or significant downturn puts major selling pressure on risk assets, such as equity, we expect high quality government bonds to be an effective diversifier. Furthermore, government bonds generally have better liquidity compared with other fixed income segments. This means investors can potentially adjust and make changes to their portfolios more easily—a feature that could be especially valuable during periods of market stress.

"The ability to be nimble and respond to changing markets is essential...."

Within the government bond space, it’s important to recognize the current climate of high fiscal deficits across developed markets, which must be funded through increased debt issuance. This is likely to fuel volatility, making it critical to consider solutions that actively manage interest rate risk. The ability to be nimble and respond to changing markets is essential in this environment.

2. Investment grade corporate bond approach

Investment grade corporate bonds should benefit from both duration³ and credit spread components. During good times when the economy is growing and credit spreads are tightening,⁴ the asset class typically does well thanks to the credit element. By contrast, when times are tougher and the economy is weakening, the duration component may kick in as a shock absorber to help offset a widening of credit spreads. We believe this defensive attribute makes the asset class appealing for investors seeking stability as well as a regular income stream.

Even though credit spreads are tight at present, we believe that the yield on offer in the asset class is still appealing and offers a pickup over traditional government bonds. As of the end of September 2025, the average yield to worst offered by European investment‑grade corporate bonds was around 3.09%.⁵

3. Global multi sector bond approach

A global multi‑sector bond approach has the ability to find attractive income opportunities across a wide variety of fixed income sectors. This includes government, corporate, and securitized debt from both investment‑grade and high yield issuers across developed and emerging markets. The approach offers the potential to diversify return sources, which may appeal to investors seeking a more stable return and lower volatility through diversification. The ability to invest across a broad range of sectors and tactically adjust allocations to the market environment may be valued by an investor who is uncertain about what sector to buy or when to make a reallocation decision. The flexibility of a multi‑sector approach takes that burden away and can be seen as a “one‑stop shop” for a fixed income allocation. However, within this category, it’s important to choose an approach that is truly global in nature and not tilted toward specific sectors, which can lead to concentration risks.

"The flexibility of a multi-sector approach takes that burden away and can be seen as a “one-stop shop”...."

4. Absolute return bond approach

Absolute return approaches aim to deliver positive returns regardless of the market conditions. These nontraditional fixed income strategies are typically benchmark agnostic and can cast a broader net, with the potential to invest in a wide range of geographies, sectors, and security types. They often have greater flexibility, including the ability to implement short positions, which may help to generate a potential positive return in falling markets. However, investors should be aware that strategies within this category can vary significantly. For those seeking potential portfolio diversification, it’s important to look under the hood for an absolute bond fund manager that has either a low or negative correlation with key market indexes, such as the S&P 500. These correlation characteristics, together with the ability to tactically respond to shifting market dynamics, give investors the potential to realize returns in a variety of different market environments, including periods of equity volatility and risk aversion.

The current challenges financial markets face—including political and economic uncertainty—may be unsettling for investors. But with bond yields still at elevated levels, we believe that fixed income offers potential attractive income generation. The diversity of the asset class also means that investors can choose a sector or approach that can help meet their specific objectives.