Morningstar’s Guide to Fixed-Income Investing
Fixed-income strategies can protect and stabilize your portfolio.
When markets look unpredictable,
“Bonds can serve as a diversifier to investors through anticipated ongoing volatility,” says Morningstar senior analyst Paul Olmsted. “With fears of economic volatility and rising tensions at the Fed, bond investors can trust that good active managers can manage risks in their bond portfolios.”
Fixed-Income Investments, Bonds, and Bank Loans in First-Quarter 2026
Higher-quality fixed-income assets, such as government bonds, stood out as stabilizers in the elevated market volatility of 2025. Morningstar manager research analyst Saraja Samant sees a bumpier 2026 so far: “The Morningstar US Core Bond Index gained 1.88% in the year’s first two months before shedding most of those gains in March and settling at a mere 0.10% return for the first quarter," she says.
Samant views first-quarter 2026 as having two distinct halves. Until mid-February, softer economic data seemed to open the door for sooner-than-expected Federal Reserve interest rate cuts. “The start of the Iran war tore that path up. Rather than acting as a safe haven, the 10-Year Treasury yield climbed to 4.88% by the end of March, which sent prices down. Treasury yields rose across the curve because of fear that higher energy prices would exacerbate inflation. Longer-duration bonds bore the brunt. The typical long-term bond Morningstar Category fund, which invests in long-dated corporate and Treasury bonds and carries a duration of 11.5 years, lost 0.74% during the quarter,” says Samant.
However, not all the news was negative. “Ultrashort bond funds demonstrated their hallmark quality: capital preservation in stressed markets,” says Samant. “With less interest rate sensitivity (a duration of less than one year), the typical fund in the ultrashort bond category gained 0.74% during the quarter.”
Fixed Income in Your Portfolio
“Fixed-income securities play a critical role in reducing portfolio risk,” says Morningstar portfolio strategist Amy Arnott. “They can also prove surprisingly resilient, even during periods of rising interest rates.”
For investors looking to lower their risk, bonds can provide downside protection for an equity-heavy portfolio. Morningstar’s insights can help you structure a portfolio that maximizes the benefits of your fixed-income investments.
Why Bond Funds Benefit From Active Management
Fixed Income for Retirees
Payments from fixed-income investments can help retirees supplement their retirement savings with a reliable source of income.
“For people who are in retirement, that diversification benefit [of bonds] is really valuable, but the fixed-income securities are also securing a portion of the retiree’s cash flows,” says Christine Benz, Morningstar’s director of personal finance and retirement planning. “They’re helping to stabilize it so the retiree doesn’t have to worry so much about what’s going on in the equity market. They know that they have a stable source of funds that they could pull from in a pinch.”
Morningstar’s research can help you find ways to use these investments and secure your nest egg.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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