Active Fixed Income Perspectives Q3 2025: The power of income

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.

Performance

Bonds have continued to demonstrate the power of income. They provided stability during the tariff-related volatility while also delivering solid returns. In the first half of 2025, broad fixed income indexes returned between 4.00%–7.25%, largely fueled by higher coupon income.

The big picture

Downside risks to the U.S. and global economies remain, even as the most severe policy scenarios have been avoided. The disruption to U.S. exceptionalism underscores the importance of diversification and global reach. Across sectors, fixed income still offers one of the most attractive entry points to add income in decades.

Our approach

Although taxable credit spreads have reverted to early 2025 levels, all-in yields near 5% or higher should continue to draw investor interest and serve as a technical tailwind. We continue to seek the best opportunities globally, remain selective in lower-quality bonds, and see value in the belly of the yield curve as a hedge to our credit exposure. In municipals, we favor high-quality credit, which offers historically attractive yields relative to long-term U.S. Treasuries.