George Bory: Allspring Global Investments is an independent asset manager with assets totalling around $630 billion, with about $430 billion in fixed income.*
Fixed income is part of our company’s DNA. Our strategies stretch around the world and extend along the yield curve. We invest up and down the rating spectrum and across taxable and tax-exempt markets.
We're committed to the public markets, which is a key differentiator of what Allspring does. Our investment teams focus on a wide range of strategies, including yield, total return, and book value investing.
As we like to say, a fixed income portfolio is only as good as the bonds in it. Active management helps increase the probability of realising advertised yields and generating solid, risk-adjusted returns. If we pick healthy credits, stay close to those advertised yields and compound through time, we should deliver good solutions to our clients.
George: In short, there is healthy but decelerating global growth. It’s dominated by three primary factors.
First, the cost of the tariffs matters. Tariffs are a tax on growth. We're seeing the impact of tariffs slowly spread across the economy in the US and around the world. We’re also seeing a weaker labour market from AI substitution. Both will likely continue going forward and remain a headwind to growth, but both are difficult to predict how far and fast.
Second, inflation isn’t sticky; it’s stuck. It's stuck at 3% in the US, but it's much closer to central bank targets outside the US. Overall, global inflation should come down, but at a slow pace. This is not surprising. Mature economies tend to have inflation closer to 3% than to 2%. Considering the stimulative measures implemented by the Trump administration, it’s likely inflation in the US will remain stuck around 3% well into 2026.
Third, despite some contradictory global inflationary pressures, central banks are still in easing mode. This is in part due to a mature economic cycle as policymakers try to extend the cycle for as long as possible.
So, what does all this specifically mean for bond investors?
For bond investors, the challenge will be managing higher inflation in the US and lower inflation in the rest of the world—a trend that is likely to extend into next year. On balance, it should make for a healthy bond investing environment.
At a high level, higher-for-longer interest rates are likely to persist into 2026, and those yields are likely to be above inflation. As a result, real yields should remain generous as bond investors are compensated for taking inflation risk.
However, the real cost of debt will likely weigh on debtors. Corporate defaults are currently low, but only for those borrowers with strong financial flexibility and access to low-cost debt. Those borrowers caught on the wrong side of inflation with rising debt costs are likely to struggle.
To manage this environment, bond investment strategies that focus on the intermediate part of the yield curve should be well-positioned to capture attractive positive real yields and maintain enough duration to benefit if bond yields decline.
However, the linchpin of realising advertised yields and generating attractive total return will likely be security selection as investors aim to secure attractive yields on offer.
George: The pain point for bond investors at this point in the cycle is identifying which borrowers are keeping pace with inflation. Can borrowers reprice their income or their earnings at or above the rate of inflation while keeping their borrowing costs in check?
This is relevant for all borrowers, whether it's governments, municipalities, corporations, or individuals. For those who can, which is the lion's share of the investment-grade and high-yield borrowers in the publicly traded market, today's economic environment is beneficial, and they should see their creditworthiness improve.
However, for those who are on the wrong side of inflationary pressures, the downside can be severe. The recent defaults of First Brands and Tricolor highlight the risks embedded in being on the wrong side of the economy, coupled with poor underwriting and a lack of credit control.
Credit selection is critical in a bond portfolio, but one interesting opportunity in today's market is on the securitised side of fixed income. Whether it's mortgage-backed securities, asset-backed securities or just the general pooling of receivables and other forms of income into a trust, using those cash flows to service the debt issued by the trust can be an effective way to reduce some of the risk inherent in lending to just one borrower.
Securitisation often offers higher credit ratings and (slightly) higher yields. On a ratings-adjusted or risk-adjusted basis, those can be attractive.
We've increased our allocations to different securitised products over the last few years as interest rate volatility moved higher and traditional credit spreads narrowed. That opportunity is not closed, and we still see plenty of opportunity in the securitised market to add value to fixed income portfolios.
George: The question is, is it higher for longer, or is it just a return to normal?
We believe it’s more the latter. The period between the Global Financial Crisis and the pandemic looks like an anomaly for interest rates, as policymakers pushed rates artificially low. Looking at today’s higher level of nominal yields, strongly positive real yields and a positively sloped yield curve, coupled with slightly above-target-level rates of breakeven yields, it all suggests that we're moving closer towards a more “normal” environment for the bond market and the cost of debt.
Even the most recent comments from the US Federal Reserve regarding monetary policy suggest there's a desire to get back to normal or to neutral.
The lowering of rates has started, and we believe it has a bit further to go. We're talking about 50 to 75 basis points to be close to a neutral stance from policymakers' perspective. If they do that, that will help normalise the curve as the front end remains anchored, but longer-term yields remain elevated.
Further out on the curve, it's no surprise to us that 10-year yields are hovering around 4% and 30-year yields are 4.5–5%. This seems consistent with breakeven inflation around 2.5%, which appears consistent with a “normal” operating environment.
For bond investors, this may result in a period of inflation-beating returns for bond portfolios because those yields are materially higher than inflation. It's also one where disciplined credit selection is paramount to realising yields offered in the market and generating total returns expected from bond portfolios.
For those who do it well, they are likely to be rewarded for taking calculated, disciplined risk and capturing extra yields.
George: I've mentioned one opportunity already—securitised products—which is an area that appears to offer value, and the second is multi-sector strategies.
Diversification may benefit a bond investor. While some investors do it through a strategic asset allocation, others are more dynamic or tactical. Multi-sector investing can improve diversification and help generate better risk-adjusted returns.
To capture these benefits, we at Allspring are focused on the following three major principles heading into 2026:
First, we want to capture the best that bonds have to offer and maintain high-quality income in portfolios. This means we have an up-in-quality bias, as we believe we're late in the economic cycle.
We also want to preserve as much positive real yield in the portfolio as possible. Doing this should allow us to beat inflation over time. We want to incorporate as much “breakeven” yield or spreads as we can. That should help protect portfolios against volatility in the future.
Second, we want to pull multiple levers in the portfolio, meaning diversification is your friend as we prepare for a range of economic and political outcomes.
One way to prepare for the unexpected is to go global. Diversifying a portfolio’s interest rate risk can help reduce volatility. Disinflationary forces are stronger outside the US, which tends to be favourable for bond investors. Investing in non-US government debt and swapping those investments back into the USD can be both an income generator and a diversifier for a bond portfolio.
Third, we want to be intentional with risk. It’s very important to make sure that we're adequately compensated for the risks in your portfolio. Unintended risks and complacent positioning could be some of the biggest risks that investors face today.
This can be achieved through active management. Passive management means you will end up buying all the risk in the market, which doesn’t necessarily make a good portfolio. You may want to try to sub-select away from the risks that are not appropriate for your strategy or perhaps are too risky given today's backdrop.
When you make those calculated decisions, you can help diversify the risks in the portfolio and use liquidity to maintain the flexibility necessary to help navigate today's unique mix of risks and maximise returns.
We live in a rapidly changing world—politically, technologically, and economically. A good bond portfolio can help investors capitalise on these changes by preserving real income and diversifying duration.
*As of September 30, 2025. Figures include discretionary and non-discretionary assets. Allspring Global Investments™ is an independent asset management firm with more than $630 billion in assets under advisement, over 19 offices globally, and investment teams supported by 370+ investment professionals. Allspring is committed to thoughtful investing, purposeful planning, and inspiring a new era of investing that pursues both financial returns and positive outcomes. For more information, please visit www.allspringglobal.com.
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Duration is a measurement of the sensitivity of a bond’s price to changes in Treasury yields. A fund’s duration is the weighted average of duration of the bonds in the portfolio. Duration should be interpreted as the approximate change in a bond’s (or fund’s) price for a 100-basis-point change in Treasury yields. Duration is based on historical performance and does not represent future results.
Basis-point (bp) 100 bps equal 1.00%)
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