Active Fixed Income Perspectives Q3 2026: Finding higher ground
Front-end yields rose over the quarter in anticipation of potential interest rate hikes. AI hyperscaler issuance surged. Long-term municipal yields remain attractive.
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Big picture: Higher yields
Performance: Front-end yields rose and the yield curve flattened over the quarter. Credit markets remained stable. Municipal bonds performed well.
Why it matters: Higher yields provide both income and a larger cushion against uncertainty. That keeps us constructive on fixed income even as markets navigate policy and inflation risks.
Rates and policy: The Fed still matters
Inflation in focus: Geopolitics remains a risk, but the markets’ attention has shifted toward inflation, growth, and central bank policy. The Federal Reserve is less dovish.
Base case: We think inflation and employment trends will soften and allow the Fed to remain on hold. However, the possibility of rate hikes leaves markets sensitive to new data.
10-year U.S. Treasury: We expect yields to trade in 4.25%–4.75% range in the near term.
Credit: AI is reshaping issuance
Record issuance: Issuance over the first half of the year is at a record pace, exceeding $1.2 trillion, with roughly a quarter tied to AI-related investment.
Hyperscalers: Meta, Google, Microsoft, Amazon, Oracle, and SpaceX have become frequent issuers as they fund the AI infrastructure buildout. Investment-grade hyperscaler issuance accounts for 13% of corporate bond market issuance year to date and now represents 4% of the investment-grade corporate credit market. This quality supply expands the opportunity set, but selection still matters.
AI hyperscaler corporate debt issuance
Source: Bloomberg, as of June 30, 2026.
Takeaways to consider: 
- Rates: Don’t overlook income beyond cash. Yields in the 1- to 10-year range on the U.S. Treasury curve remain attractive.
- Credit: Issuance from AI hyperscalers with strong balance sheets adds quality to the investment-grade market.
Publication date: July 2026
Notes:
This document is published by The Vanguard Group, Inc., the indirect parent company of Vanguard Investments Canada Inc. It is not a recommendation, offer or solicitation to buy or sell any security, including any security of any investment fund or any other financial instrument. The information contained in this material is not investment advice and is not tailored to the needs or circumstances of any investor, nor does the information constitute business, financial, tax, legal, regulatory, accounting or any other advice. Research published by The Vanguard Group, Inc., may not be specific to the context of the Canadian market and may contain data and analysis specific to non-Canadian markets and products. The information is for informational purposes only and should not be used as the basis of any investment recommendation. Investors should consult a financial, tax and/or other professional advisor for information applicable to their specific situation.
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Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer 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.
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