Art by Valeria Petrone
With high-quality corporate bonds holding the higher yield levels they hit in July 2022, and considering signals from central banks that rate cuts lie ahead, fixed income has rarely been this attractive for institutional investors.
“Technicals within fixed-income markets remain incredibly strong, almost everywhere that you look,” says Andrew Jackson, Vontobel’s head of investments and head of the firm’s fixed-income boutique. “New issues get done, no matter how tough the environment [is].”
Elevated yields, improving technicals and a weakening dollar are reshaping allocation decisions to the asset class. Since the end of the zero-interest-rate environment for many government bonds, fixed income has become important again.
“Virtually all sectors of the bond market have done well since the tumultuous and painful year of 2022,” says Warren Pierson, co-CIO and a senior portfolio manager at Baird Asset Management.
The biggest driver of fixed-income investment performance since the COVID-19 pandemic has been the sharp rise in interest rates, notes NISA Investment Advisors’ director of investment strategies, Rick Ratkowski.
“Yields are still 250 to 300 [basis points] higher than the start of 2022,” Ratkowski says. “After the subsequent increase in rates, investors have had a tailwind, with yields at the highest level since the [global financial crisis].”
How Institutional Investors View Fixed Income
“For liability-driven investors, this is the most attractive environment we’ve seen in over a decade,” says Sutanto Widjaja, CIO of asset manager Farther Institutional. “High-quality fixed income now offers the opportunity to lock in predictable cash flows that closely match future obligations.”
With higher yields, some investors point to lower-rated corporates as strong performers for institutional portfolios.
“We believe high yield may also be a reasonable addition to fixed-income portfolios in the coming year,” Ratkowski says. “It is often underrepresented in strategic asset allocations, providing extra diversification within fixed-income portfolios.”
Don Sheridan, a director at Segal Marco Advisors, notes that many institutional allocators are increasingly turning to fixed income to provide portfolio diversification benefits, “particularly in cushioning equity market volatility or to generate returns through credit markets while reducing equity exposure.”
Institutional allocations to fixed income continue to rise—a November 2024 report from Managing Partners Group noted that 99% of institutional investors intended to increase their allocations to fixed income over the next 18 months.
Nuveen’s fifth annual EQuillibrium survey of asset owners found that nearly half of these investors aimed to expand into new niche areas of private credit in order to extend their fixed income durations, looking to investments such as private real estate and infrastructure debt.
Insurance investors are also increasingly looking to private credit, with multiple surveys confirming these investors’ desire for longer-duration, higher-yielding income assets.
Best Ideas in Fixed Income
For the year ahead, investors are eyeing opportunities in global fixed income and higher-risk parts of the asset class. The combination of a weaker U.S. dollar and emerging market countries beginning their interest-rate-easing cycles earlier than developed markets has boosted EM debt.
Vontobel’s Jackson points to strong performance and inflows in emerging markets fixed income.
“We have seen really fantastic flows in 2025 [to] emerging market fixed income, particularly local currency emerging market fixed income, where the decline in the U.S. dollar has been very advantageous for that asset class,” Jackson says.
Anders Persson, CIO and global head of fixed income at Nuveen, notes that many emerging markets may have a more stable backdrop than many developed markets. Multiple fixed-income investors point out the high levels of government fiscal deficits in developed markets, a problem less common in emerging markets.
While high-quality bonds , the search for incremental yield is pushing allocators toward structured credit and private debt markets.
“We’re actually comfortable going below investment grade, including leveraged loans, including private credit, but we are stressing to investors to stay diligent, focusing a little bit more in the upper quality of that below-investment-grade side,” Persson says.
Institutional investors are increasingly weighing how far down the credit spectrum they can go without compromising quality. Persson notes that investors exploring B- and BB-rated investments should stress diligent underwriting.
In the big picture, Sutanto says capitalizing on yield opportunities should be a primary focus as the year begins.
“Institutional allocators are focused on yield, rather than spread. Starting yields remain competitive with long‑run equity return assumptions. Some pockets of fixed income actually have the potential to deliver equity-like returns; thus, allocators may consider reallocating the equity budget to such pockets,” Sutanto says. “Heading into 2026, investment committees should be asking one fundamental question: Have we locked in enough of today’s yields before the next phase of the market cycle?”
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Tags: corporate bonds, fixed income strategies, Interest Rates