Where can bond investors find yield?

Because fixed income – and credit, especially – has such a broad field of opportunities, we believe there’s a surprisingly wide range of options.

Sovereigns steepening?

Buying government bonds feels like an interesting option in many cases, because sovereigns haven’t rallied as much as corporates. But it’s important to be aware of fiscal risks from countries including the US, UK, France, and Japan, where spending is outstripping government income.

Inflation is back and rising

We believe there are two main reasons why curves have steepened for government bond markets around the world (in other words, longer yields rising faster than shorter yields).

Short and sweet?

For the most cautious investors, shorter-dated bonds likely have around a year left before you’re going to be tempted away. Achieving yields in the high 4% area is still possible without going longer and increasing the volatility in your portfolio.

How volatile are longer-dated bonds?

That said, we believe longer-dated bonds are starting to become more attractive. Going for longer-dated bonds does raise your volatility risk, but compared to many other competing markets, we believe there isn’t as much volatility as some may have originally feared (Chart 1).

Source: Aberdeen, Bloomberg September 2025.

And now, the extra yield from going longer is starting to pick up (Chart 2).

Chart 2. The extra yield from going longer is starting to pick up

Source: Aberdeen, Bloomberg September 2025.

Today’s credit curve for top-rated investment-grade bonds (broadly A-rated) in the credit market, compared to just two years ago, where you were much better keeping it shorter.

Being selective

Which sectors of the economy are still of interest for credit investors? Being increasingly selective makes a lot of sense given that premiums (extra yield over risk-free bonds) have been reduced so much over the last couple of years. But we believe there are opportunities:

Useful utilities?

Utilities are a haven in times of economic uncertainty, and this is still the case in many parts of the world, but good yields are available and can be enhanced by buying longer- dated bonds. For example, going longer into the 15-year area for single A can achieve 5.5%.

Banking on banks?

Banks, where we have seen a really strong performance from credit in the last 2–3 years, still offer appealing opportunities as you move along the maturity curve. Keeping in the single A area, it is possible bonds will return 5.5% for 15 years. We believe these may be some of the best quality credits around, judging by having a broad single A rating.

We are favorable on US banks as we expect deregulation to soften the needs for total loss absorption capacity debt without loosening equity capital requirements. This should improve the technical picture for bank bonds without major deterioration in credit quality.

There are, however – as it is fixed income – a plethora of choices investors can make, such as going down in quality and/or shorter for, at the moment, a small pick-up in yield. As always, we believe fixed income is a rich environment for investors to select the risks and opportunities that suit them.

Opportunity set

The riskier end of the fixed interest spectrum can of course lead to a broader opportunity set with a wider set of risks and returns. An experienced fund manager can help clients to navigate these areas.

For investors focused on income, liquidity, and price stability, a strategy such as a short dated enhanced income portfolio targets highly rated fixed income with low interest rate sensitivity. This active strategy focuses on short-dated assets and has a mandate to invest in bonds with a maturity of up to five years.

Considering longer-dated bonds?

We believe it could be a worthwhile use of time and risk budgets. For institutional investors with a yield focus, there are still many opportunities out there. But starting to consider longer-dated bonds in the mix could be a worthwhile use of time and risk budgets – especially given the quality available.

Important information

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.

Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), call (some bonds allow the issuer to call a bond for redemption before it matures), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).

Standard & Poor’s credit ratings are expressed as letter grades that range from “AAA” to “D” to communicate the agency’s opinion of relative level of credit risk. Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. The investment grade category is a rating from AAA to BBB-.

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