Active Fixed Income Perspectives Q2 2026: Dispersion drives opportunity
Bond markets have demonstrated notable resilience. Yields—near or above 4% across much of the market—continue to support investor returns.
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Big picture
Markets remain resilient: Higher energy prices pose an increasing risk to both the growth and inflation outlook. Front-end government bond yields have moved higher, but markets have overall remained tame. We have not materially altered our base case outlook, but outside the U.S., we expect a larger impact.
Higher yields are doing their job: Geopolitical shocks and rising energy prices pushed yields higher, but starting yields near or above 4% helped cushion total returns.
Macro
We see three scenarios from the impact of the conflict with Iran:
Base case: Progress that leads to timely resumption of shipping through the Strait of Hormuz would mean lesser impact to economic growth or medium-term inflation.
A protracted standoff: If oil prices remain above $100 per barrel for several quarters, we see a modest decline in U.S. growth and rise in core inflation. Europe would experience much greater impact.
Recession outcome: It could take oil prices of $200 per barrel for a year to trigger a recession in the U.S.
Central banks
Globally: Expectations shifted from near-term rate cuts toward the possibility of rate hikes this year in economies more exposed to energy shocks.
U.S.: We expect the Fed to remain on hold with the potential for a policy rate cut later in the year, dependent on clearer progress in inflation.
Credit
Dispersion: Performance is becoming more differentiated across subsectors and issuers, creating a bond picker’s market. We have added issuers with resilient business models now trading at more attractive levels.
Rising uncertainty is increasing dispersion and opportunity
Source: Macrobond as of April 9, 2026.
Takeaways to consider:
- The belly of the curve: With yields moving up, the 2- to 10-year range on the U.S. Treasury curve provides a strong risk-reward profile.
- Credit: While credit spreads remain tight, yields are attractive and dispersion has created opportunities for active management.
Publication date: April 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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