2026 Fixed Income Market Outlook
Income Engines at Work
December 8, 2025
2025 Recap
Bond markets delivered the income investors needed
U. S. fixed income delivered strong, income-driven returns in 2025, providing stability, attractive yields, and diversification benefits for investors. While equity returns were AI-focused and experienced volatility driven by tariffs and global trade uncertainty, fixed income returns were more stable and served as compelling income generators in portfolios.
- Emerging Markets: USD-denominated emerging markets sovereign debt was the top performer across fixed income in 2025, with the J.P. Morgan EMBI Global Diversified Index returning 13.5% as of 11/30/2025, reflecting factors including the weaker U.S. dollar, improving fundamentals for emerging economies, and attractive yields.
- Credit: Intermediate BBB rated corporate bonds were the best performing sector within U.S. corporate bonds, reflecting strong fundamentals and declining interest rates. In U.S. high yield, BB rated bonds were the top performer, as a result of attractive coupon income and price appreciation.
- U.S. Treasuries: Intermediate-to-long dated U.S. Treasuries performed particularly well in 2025, benefiting from Federal Reserve rate cuts and moderating inflation.
Data source: J.P. Morgan and ICE Data Services as of 11/30/2025.
Figure 1: Precision outperformed broad bond market exposure in 2025.
Source: Bloomberg, as of 11/30/2025. 2026 Outlook
Where to Focus Ahead
We expect fixed income will continue to play an essential role in portfolios in 2026. U.S. economic growth is forecasted to be comfortably positive next year, with GDP growth of +1.5%-2.0%. While inflation may moderate, it will likely stay above the Federal Reserve’s 2% target due to structural factors such as higher tariffs and supply chain shifts, preventing inflation from returning to pre-pandemic levels. The Federal Reserve is expected to approach future rate cuts cautiously in 2026. The U.S. Treasury yield curve could continue to steepen as short-term rates decline faster than long-term yields. Long-term interest rates may stay elevated due to inflation concerns and fiscal pressures. The transition in leadership from Chairman Powell could also influence the direction of monetary policy next year.
Credit fundamentals for both public and private credit will remain supported by the resilient U.S. economy, strong balance sheets, manageable debt maturities, and lower interest rates. While credit spreads are near the tight end of historical averages, we believe they reflect sound fundamentals that will persist in 2026. On a relative value basis, corporate bonds continue to look compelling, as their elevated yields offer attractive income opportunities compared to other asset classes.
Offset volatility with income
With uncertainty and market volatility expected to persist in 2026, investors could use fixed income to generate income and help cushion volatility.
Invest in credit
U.S. companies remain fundamentally strong. Be precise: look to high quality public and private corporate bonds.
Focus on intermediate duration
Look to capture attractive yields and potential enhanced total return with intermediate U.S. Treasuries, corporates and international bonds.
Outlook Across Key Bond Categories
We believe Investing in bonds with precision matters more than ever. Here are the areas where we see opportunities in 2026 and how to implement with BondBloxx ETFs.
Private Credit: Seek Attractive Yields
With compelling yields and low volatility, private credit is a diversifier to other fixed income and equities. It continues to exhibit solid fundamentals and may help reduce interest rate risk, due to the floating rate nature of this asset class.
U.S. Corporates: Focus on Specific Ratings
We continue to see favorable tailwinds for U.S. corporate bonds, including a resilient economy, strong fundamentals, high yields, manageable debt maturities, and Federal Reserve policy that has become more accommodative.
Investment grade corporates remain in a strong fundamental position and will benefit from stabilizing interest rates. We prefer BBB rated, given their coupon income in the 4% to mid 5% range.
High yield corporates offer relative value due to their generous coupon income, which may mitigate return volatility. BB rated bonds have coupons near 6%, with low default risk compared to broad high yield. CCC rated bonds provide higher income potential, with coupons above 11%.
Emerging Markets: Mind the Duration
Short-to-intermediate duration emerging markets sovereign debt remains attractive due to elevated yields and resilient global economic conditions.
U.S. Treasuries: Intermediate is the Sweet Spot
Yields remain attractive, particularly in the intermediate part of the US Treasury curve, reflecting the potential for declining interest rates in 2026.
Tax-Aware: More Than Municipals Only
Tax-aware strategies providing exposure to both municipal and taxable bonds offer higher after-tax total return potential than municipal bonds alone.
Portfolio Implementation
For ideas on how to use BondBloxx ETFs to complement or replace existing fixed income allocations, reach out to us at investmentinsights@bblxetf.com. We also offer portfolio implementation ideas designed to efficiently target specific goals, including:
- A modern core bond approach with diversified income sources
- A core bond approach focused on maximizing after-tax income
- A targeted credit approach designed to enhance income
DISCLOSURES
Carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information can be found in the Funds’ prospectus or, if available, the summary prospectus, which may be obtained by visiting BondBloxxETF.com. Read the prospectus carefully before investing.
There are risks associated with investing, including possible loss of principal. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. Fixed income investments are also subject to credit risk, the risk that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. Investment grade bonds have ratings of BBB- or above. High yield bonds have ratings of BB+ and below. BBB-rated bonds are typically subject to greater risk of downgrade than other investment grade bonds, especially during an economic downturn or substantial period of rising interest rates. Any downgrade of such bonds would relegate such bonds from the investment grade universe to the high yield (or “junk” bond) universe. Securities that are rated below investment-grade may be deemed speculative, may involve greater levels of risk than higher-rated securities of similar maturity and may be more likely to default. Investing in mortgage- and asset-backed securities involves interest rate, credit, valuation, extension and liquidity risks and the risk that payments on the underlying assets are delayed, prepaid, subordinated or defaulted on.
Nothing contained in this presentation constitutes investment, legal, tax, accounting, regulatory, or other advice. Information contained in this presentation does not constitute an offer to sell or a solicitation of an offer to buy any shares of any BondBloxx ETFs. The investments and strategies discussed may not be suitable for all investors and are not obligations of BondBloxx. The content of this presentation is intended to be for informational purposes only and is not intended to be investment advice. Not for distribution to the public. Decisions based on information contained in this presentation are the sole responsibility of the intended recipient. You should obtain relevant and specific professional advice before making any investment decision. This information is provided for informational purposes only and is subject to change without notice.
The content is provided by us and certain third parties and is intended for information purposes only. The Content has been obtained from, or is based on, sources believed by us to be reliable, but is not guaranteed as to its accuracy or completeness. The Content is provided without obligation on our part and on the understanding that any person or entity who acts upon it or changes his, her or its investment position in reliance on it does so entirely at his, her or its own risk.
*Net expense ratio shown for HYSA. Gross expense ratio is 1.00%. BondBloxx Investment Management has contractually agreed to waive 0.45% of its management fees through 2026. Please see the Fund’s prospectus for additional details.
Index definitions: The Bloomberg US Corporate BBB 5-10 Year Index measures BBB-rated, fixed-rate, taxable corporate bonds of maturities between 5-10 years, and 10+ years. The Bloomberg US Treasury Seven Year Duration Index is designed to target 7 year duration using US Treasury securities. The ICE BofA BB US Cash Pay High Yield Constrained Index (BB Index) contain all B1-B3 rated securities in the ICE BofA U.S. Cash Pay High Yield Index. Index constituents are capitalization-weighted, based on their current amount outstanding. The ICE BofA Broad Market Index (U.S. Aggregate Index) measures the performance of U.S. dollar-denominated, investment grade debt securities, including U.S. Treasury notes and bonds, quasi-government securities, corporate securities, residential and commercial mortgage-backed securities and asset-backed securities. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar-denominated investment grade rated corporate debt publicly issued in the U.S. domestic market. The ICE BofA U.S. High Yield Index tracks the performance of U.S. dollar-denominated, below investment grade-rated corporate debt publicly issued in the U.S. domestic market. The ICE BofA U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market. The JP Morgan EMBI Global Diversified Index tracks total returns for traded external debt instruments in the emerging markets, including U.S. dollar-denominated Brady bonds, loans, and Eurobonds with an outstanding face value of at least $500 million.
Private credit investments are generally illiquid and do not trade on public or established exchanges, though certain investment vehicles such as CLOs may offer exposure to these assets with secondary market trading. While these vehicles can provide more liquidity, the underlying private credit instruments may remain less liquid.
BondBloxx Investment Management LLC (“BondBloxx”) is a registered investment adviser.
Distributor: Foreside Fund Services, LLC.
