Tilt Toward Bonds: Four Fixed Income ETF Ideas to Consider Instead of Equities
BondBloxx Midyear 2026 Bond Market Outlook
July 13, 2026
Why Fixed Income Now?
Entering the second half of 2026, bond yields are high enough to rival, and on a risk-adjusted basis potentially outperform, equity returns. Elevated equity valuations threaten future stock performance, boosting the relative case for fixed income. The S&P 500 is up 10.2% through June 30, but strip out mega-cap AI and energy stocks and the rest of the index is essentially flat.1 With AI optimism, strong earnings, and soft-landing narratives largely priced in, the macro backdrop is turning less favorable for equities:
- Inflation remains sticky and above the 2% target set by the Federal Reserve (Fed).
- Economic growth is moderating after years of resilience.
- The Federal Reserve is leaning toward keeping rates high to fight inflation.
- Equity market gains are narrow and concentrated in a handful of volatile sectors.
- Valuations are elevated, with the S&P 500 is trading at 21–22x forward earnings, higher than 85–90% of observations over the past 40 years.2
In this environment, fixed income is reasserting its dual role: income generation and volatility stabilization. There are a range of fixed income exposures, spanning high yield, emerging markets, and private credit, that offer compelling income with more contractual certainty than equities at current valuations.
Bond ETFs as the Vehicle of Choice
Fixed income ETFs had inflows of over $300 billion through June, putting them on pace to blow past 2025’s record $434 billion, itself a sharp jump from prior years.3 This growth mirrors the equity ETF trajectory and includes demand for more precise tools to build client-centric, not generic, bond portfolios. Investors continue to use fixed income ETFs to reposition quickly and efficiently:
- Over 95% of U.S. Fixed Income ETF Morningstar categories posted net inflows year-to-date, with flows well-diversified across categories.4
- Only two categories saw outflows: emerging markets bond (-$729 million) and long government (-$3.9 billion), the latter reflecting investor caution about ongoing rate volatility.5
Fixed Income ETF Flows: Top 10 Categories
Year to date through June 30, 2026
| U.S. ETF Morningstar Category | Net Flows (millions) | Total Assets (millions) |
|---|---|---|
| TOP 10 ETF FLOWS YTD | ||
| US Fund Ultrashort Bond | $65,459 | $380,478 |
| US Fund Intermediate Core Bond | $41,852 | $418,375 |
| US Fund Intermediate Core-Plus Bond | $27,368 | $138,578 |
| US Fund Money Market-Taxable | $21,540 | $26,623 |
| US Fund Corporate Bond | $20,945 | $178,414 |
| US Fund Short-Term Bond | $18,124 | $164,287 |
| US Fund Multisector Bond | $14,870 | $58,229 |
| US Fund Muni National Intermediate | $14,796 | $133,113 |
| US Fund Global Bond-USD Hedged | $14,578 | $112,072 |
| US Fund Securitized Bond – Focused | $9,875 | $48,246 |
Source: Morningstar, BondBloxx as of June 30, 2026.
Key Macro Themes Shaping the Bond Market
Income Over Duration
Investors don’t need to predict rate direction, a task that’s proven especially difficult over the past three years given the complex interplay between inflation, the Fed, the broader economy, and shifting administrations. Instead, they can select bond exposures with compelling yields and let the income from contractual coupon payments do the work.
The Fed’s Turn Toward Higher-for-Longer Rates
Chairman Warsh’s first Federal Open Market Committee (FOMC) meeting reinforced the Fed’s inflation-fighting credibility without sharp policy pivots. Markets now expect a prolonged pause, with a small possibility of a late-cycle hike still embedded. The data shows:
- The long end of the U.S. Treasury curve has risen sharply in yield since its February lows, with the 10-year U.S. Treasury settling around 40 bps higher near 4.50%.6
- The 30-year Treasury, though down from its recent high above 5.00%, remains near levels not seen since the period following the Global Financial Crisis.7
The takeaway: the Fed seems unwilling to declare victory on inflation prematurely, and its higher-for-longer stance continues to make fixed income a compelling alternative to equities.
Persistent Inflation
Inflation remains the central macro risk for fixed income markets. Recent Consumer Price Index (CPI) data shows disinflation has stalled, with one of the strongest price increase trends in years. Several factors are keeping prices elevated:
- Energy-driven price pressures are building as a result of the Middle East conflict.
- Services inflation remains sticky, driven by housing and core services costs.
- Supply-side disruptions from reshoring trends continue to add upward pressure on prices.
In our opinion, the risk profile for long-duration U.S. Treasuries remains elevated, with yields more likely to rise from here than fall.
Credit Fundamentals: Healthy, But Selectivity Matters
Credit fundamentals across both public and private credit remain supported by a resilient economic backdrop:
- Corporate balance sheets are healthy, average credit quality has improved, and earnings have held up well. Leverage statistics remain near pre-pandemic lows with net debt/EBITDA ratios averaging around 3.8x, while interest coverage ratios remain near recent highs of 4.2x.8
- Although credit spreads are near historically tight levels and have limited room for further compression, we believe they’re justified by strong fundamentals and robust investor demand for yield. History supports this: spreads remained tight for extended stretches during 2012–2015 and 2017–2019, showing that “tight” doesn’t necessarily mean “about to widen.”9
Selective positioning in credit ratings remains critical: with return dispersion across ratings elevated, precise rating selection has the potential to outperform broad index investing.
Four Bond ETF Ideas for H2 2026
U.S. High Yield Corporates: Target Equity-Like Returns of CCCs
Today’s U.S. high yield market looks meaningfully different from past cycles. Average credit quality has improved, and companies have been more disciplined about managing their balance sheets. Be precise:
- Targeted exposure across BB, B, CCC rating categories may generate material outperformance versus broad high yield benchmarks.
- CCC rated bonds have the most compelling yield in the asset class at 12.7%, which is hard to match anywhere else in fixed income.10
Private Credit: Look Past the Noise to Access the Yield Premium
With interest rates elevated, private credit is generating more income now than in most of the past decade:
- Private credit typically yields more than investors can expect from public bonds or equities.
- ETFs now provide broader investor access to this asset class.
- Manager quality, underwriting discipline, and structural protections are the critical differentiators, since not all private credit is created equal.
Emerging Market Bonds: Keep Duration Short Without Sacrificing Yield
Emerging market fundamentals remain generally sound, supported by improved fiscal discipline and proactive central bank policy. The key insight for H2 2026: keep duration short.
- EM sovereign debt in the 1–10 year range currently yields 5–6%.11
- Shorter-duration EM debt has historically outperformed broader long-duration EM exposure.
- It also carries significantly less interest rate volatility than long-duration EM exposure.
Tax-Aware Investing: Maximizing After-Tax Returns Means Looking Beyond Munis
The first half of the year made a compelling case yet again that a muni-only approach can leave meaningful after-tax yield on the table, particularly when markets shift. To help optimize after-tax income:
- Incorporate flexibility to capture after-tax yield wherever it is most compelling.
- Rather than staying constrained to a single category, look to strategies that move dynamically across municipals and taxable bonds as relative value shifts.
Frequently Asked Questions
Why buy fixed income today versus equities?
Bond yields are materially higher than at any point in the post-2008 era. Investment grade corporates at 5–6% and high yield at 7–12% are now competitive with long-run equity return expectations — with far more contractual certainty. Meanwhile, equities are trading near 40-year valuation highs12 with narrow market breadth, making the risk-reward less attractive entering H2 2026.
Where should investors position on the U.S. Treasury curve?
We believe short-to-intermediate maturities offer the most attractive balance of yield and volatility. The case against long-duration Treasuries is straightforward: elevated inflation uncertainty, fiscal policy dynamics, and structural supply pressures mean the risks of owning long-dated bonds are skewed to the downside, with yields more likely to rise from here than fall.
Is it too risky to invest in CCC rated high yield bonds?
Investors are being compensated with yields above 12% for CCC credit risk, and the resilient U.S. economy continues to support fundamentals across the high yield spectrum. The critical risk management tool is diversification: an index-based approach to CCC investing substantially reduces idiosyncratic single-name risk while preserving access to the category’s compelling yield.
What are investment ideas if the Fed starts raising rates again?
Favor short-duration and floating-rate exposures: short-duration Treasuries, short-duration investment grade corporates, and high yield corporate bonds all reprice higher as rates rise with minimal price erosion. If rates hold steady or fall, extending into intermediate maturities captures both income and potential price appreciation.
How can investors seek to maximize after-tax income beyond municipal bonds?
Tax-aware fixed income investing isn’t solely about owning munis. It’s about optimizing after-tax yield across the full spectrum of tax-exempt and taxable bonds and choosing tax-efficient vehicles like ETFs that minimize capital gains distributions relative to mutual funds.
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1Source: Bloomberg, as of June 30, 2026.
2Source: Bloomberg, as of June 30, 2026.
3Source: Morningstar, BondBloxx, as of June 30, 2026.
4Source: Bloomberg, as of June 30, 2026.
5Source: Bloomberg, as of June 30, 2026.
6Source: Bloomberg, as of June 30, 2026.
7Source: Bloomberg, as of June 30, 2026.
8Source: BofA Securities, as of June 30, 2026.
9Source: Bloomberg, ICE Data Services, as of June 30, 2026.
10Source: Bloomberg, ICE Data Services, based on the ICE CCC US Cash Pay High Yield Constrained Index, as of June 30, 2026.
11Source: Bloomberg, based on the J.P. Morgan 1-10 Year Emerging Markets Sovereign Index, as of June 30, 2026.
12Source: Bloomberg, as of June 30, 2026.
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.
Bond ratings are grades given to bonds that indicate their credit quality as determined by select nationally recognized statistical rating organizations (NRSROs). These firms evaluate a bond issuer’s financial strength or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are generally expressed as letters ranging from ‘AAA’, which are the highest grade, to ‘C’ or ‘D’, which are the lowest grade, depending on the agency’s scale. As an example, according to the Standard & Poor’s rating agency, investment grade bonds range from AAA to BBB- and high yield bonds have ratings of BB+ and below. Securities that are rated below investment-grade (sometimes referred to as “junk bonds”), or similar securities that are unrated, may be deemed speculative, may involve greater levels of risk than higher-rated securities of similar maturity and may be more likely to default.
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.
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Index definitions: The S&P 500 Index tracks the performance of 500 leading large-cap U.S. equities and covers approximately 80% of available market capitalization. Indices are unmanaged and do not reflect fees, expenses, or transaction costs, and it is not possible to invest directly in an index. Past performance is not a guarantee of future results. The ICE CCC US Cash Pay High Yield Constrained Index contain all securities in the ICE BofA U.S. Cash Pay High Yield Index, broken down by the rating categories CCC1-CCC3. Index constituents are capitalization-weighted, based on their current amount outstanding. The J.P. Morgan 1-10 Year Emerging Markets Sovereign Index tracks liquid, U.S. dollar emerging market fixed and floating-rate debt instruments issued by sovereign and quasi sovereign entities. The EMBIGDL 1-10 Index is based on the long-established J.P. Morgan EMBI Global Diversified Index and follows it methodology closely, but only includes securities with at least $1 billion in face amount outstanding and average life below 10 years.
Other definitions: EBITDA is a company’s earnings before interest, taxes, depreciation, and amortization are deducted. It is a measure of core operating profitability that excludes financing decisions, tax environment, and non-cash accounting charges.
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.
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