Vanguard Active Fixed Income Perspectives is our in-depth quarterly commentary on the bond markets, with sector-by-sector analysis and a summary of how those views affect Vanguard’s actively managed bond funds.

The first half of 2022 was the worst six months for fixed income since either before the Civil War or George Washington was president, depending on the source. Interest rates are up. Credit spreads have widened. Global bond markets are spooked.

Positive real yields now exist, with bond yields higher than expected inflation over the next five years and beyond. Corporates, municipals, high yield, and emerging markets present more opportunity than any time in the recent past. Bonds again offer an alternative with reasonable income again and have reestablished their role as a portfolio hedge to equity risk.

The economic outlook remains hazy, so patience is still needed. In recent weeks, markets have priced in lower growth projections and fewer rate hikes for this cycle. Valuations have improved as recession fears grow, offering more value and better long-run returns. Risks of stickier-than-expected inflation or a policy overreaction must be factored in.