Long-term Treasury yields are near their highest levels since before 2008’s global financial crisis. While rising yields cause bond prices to fall, as they did in 2022, fixed-income investors can take advantage of elevated yields to pick up higher levels of income. Recent market developments have not only pushed up long-term Treasury yields but also widened spreads among credit-sensitive bonds, or the premium investors pay to take on default risk. This has made bonds more attractive for investors looking to lock in healthy yields, the largest driver of long-term bond performance.
Consider 10-year Treasury note yields that recently ranged between 3.60% and 4.80% and stood at 4.50% in mid-May 2025, after Moody’s downgrade of the US credit rating to Aa1 from Aaa. The last time they reached that level was 2007. It’s difficult to predict interest-rate movements from here, but the opportunity to take advantage of these robust yields makes this a compelling time for bond investors.
Valuations for credit-sensitive bonds have also cheapened more recently on economic uncertainty, thanks to a shifting picture for global tariffs. On the riskier end of the credit spectrum, high-yield bond spreads versus Treasuries widened about 100 basis points, suggesting heightened risk but also opportunities to take advantage of robust yields. Broad high-yield market yields are more than 7.0%, still far from 2008’s peak levels but near more recent highs in 2012, 2016, and 2020. This represents the potential for equitylike returns with lower volatility. Of course, high-yield portfolios can be more volatile than multisector and core-plus bond offerings, and investors should size their positioning accordingly.
The following strategies can provide higher income potential, and each offers an active exchange-traded fund vehicle.
Fidelity Total Bond FTBFX is a reliable intermediate-term core-plus bond strategy that uses its flexibility to manage across investment-grade credit, mortgage-backed securities, and Treasuries. It can include up to 20% of assets in high-yield and emerging-markets debt. Ford O’Neil has successfully steered this strategy for more than two decades, in addition to having one of the deepest analyst teams in the industry. The portfolio included about 10.5% in below-investment-grade debt as of March 2025, which was more than its typical peer and drove its 5.0% SEC yield about 40 basis points higher than a comparable core-bond passive ETF. The strategy, which has a Morningstar Medalist Rating of Gold, is available as an active ETF (ticker FBND) with lower expenses.
JPMorgan Income JGIAX relies on a value-driven approach that favors securitized debt and a healthy dose of below-investment-grade bonds to generate its 5.5% SEC yield (as of April 2025). Multisector bond veteran Andrew Norelli leads this Silver-rated fund that draws on a small army of portfolio managers, sector specialists, and fundamental research analysts to drive positioning for this bottom-up process. The team favors the stable cash flows of mortgage- and asset-backed securities but includes high-yield credit and emerging-markets debt to round out the portfolio. It also strives to consistently distribute monthly income. J.P. Morgan offers this strategy as an active ETF (ticker JPIE) with a lower expense ratio.
Bronze-rated T Rowe Price Floating Rate PRFRX is a best-in-class bank-loan fund that comprises non-investment-grade, floating-rate debt. Manager Paul Massaro has been on the fund since 2009 and leads the firm’s high-yield and bank-loan franchise. A seasoned credit research team analyzes corporate fundamentals and assesses relative value. The fund’s 6.9% SEC yield offers investors higher income, but the lower-grade credit of bank loans can mean larger drawdowns in periods of credit stress. The strategy has an ETF option (ticker TFLR) at a lower price tag.
Market volatility can also favor actively managed fixed-income strategies as strong portfolio managers can navigate risk and take advantage of market dislocations. While these strategies typically have higher expense hurdles, a good active manager can offer better long-term value than passive offerings.
A version of this article first appeared in the May 2025 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.