Investing for Income: Where to Find Yield in 2026

Investing to generate income will always hold appeal for investors, especially when broad market conditions are uncertain and some market segments appear overvalued—as is the case today.

Higher interest rates have revived income opportunities across bonds and equities, but not all yield is built to last. The generation of dependable, resilient income depends on navigating evolving investment risks such as inflation, tight credit spreads, and heightened valuations.

Here, Morningstar portfolio managers share the income investing opportunities they’re watching in 2026. For more ways advisors can prepare for what’s next, download the full 2026 Global Investment Outlook.

Investors searching for income faced a scarcity problem for much of the past decade. Fixed-income yields were low, while reliable and growing cash flow streams were hard to come by. But interest rates have headed back up in recent years, creating new income opportunities. Still, risks remain for income investors.

• Inflation reduces the real return on fixed-income investments. This is especially challenging for retirees, who may need the income in a shorter time horizon.
• Tight credit spreads mean that investors could receive less compensation for assuming more credit risk.
• Elevated equity valuations make it difficult to find dividend-paying stocks at a discount.

Given this uncertainty, how can advisors help clients navigate their quest for income?

When evaluating potential fixed-income strategies for clients, advisors need to consider both yield and duration.

Shorter-dated bonds, which are more sensitive to changes in central bank rates, are currently yielding less than longer-dated bonds. However, longer maturities are more vulnerable to shifts in interest rates, credit risk, inflation, and relative value compared to other bonds.

Intermediate-dated bonds, which mature in five to 10 years, look like the sweet spot in terms of balancing yield and managing downside risk. They offer yields above cash rates and benefit from capital appreciation as they approach maturity. Intermediate bonds also stand to gain further if central banks begin cutting interest rates.

If clients tend to overreact to news about the Fed or the economy, advisors can help curb fears by explaining these underlying mechanisms. Preempting panic-inducing headlines with education can help clients stay on track during market turbulence.

Foreign-currency risk is a central risk of investing internationally: When domestic cash rates exceed those of international markets, investors will see lower returns on foreign securities.

This is the scenario that US investors are facing today, as currency-hedged global sovereign bonds yield more than US Treasuries.

By taking steps to hedge this risk, investors can boost overall yield, reduce portfolio volatility, and add diversification benefits.

Advisors should review fixed-income allocations by region and evaluate how any tweaks might affect the overall investment portfolio strategy.

Historically, income investors have earned higher yields over sovereign bonds by taking on additional credit risk. US investment-grade corporate bonds, on average, have offered an extra 132 basis points of yield over US Treasuries while maintaining low default rates. 

Today, however, that spread sits near historical lows. US investment-grade bonds now offer just over 70 basis points in added yield, even as company fundamentals such as interest coverage and free cash flow/debt have deteriorated.

The chart below shows how US corporate credit spreads have narrowed in recent years.

Source: Morningstar Indices. Data as of Sept. 30, 2025.

High-yield credit remains a popular source of income generation. However, spreads are at their narrowest levels in over a decade. And while credit quality in this market has improved, valuations appear stretched.

Advisors should review each client’s appetite for risk to understand the right margin of safety for riskier, potentially higher-yield investments. 

While nominal bond yields are appealing, investors—particularly ones with longer investment horizons— should still seek exposure to assets that enable them to preserve real income and offset inflation. They can use select growth assets to diversify and supplement income.

Here’s where we see income investing opportunities in 2026.

• Intermediate bonds. These investments offer attractive yields and potential capital gains as interest rates fall.
• Currency-hedging international bonds. This category offers potential yield pickup and other aftertax benefits across jurisdictions.
• US agency mortgage-backed securities. With AAA or AA+ credit ratings, these securities currently yield more than equivalently rated credit or US Treasury bonds.
• Local-currency emerging-market debt. While the average yield is around 6.3%, select opportunities can offer all-in yields above 9%, with the added potential for currency appreciation.
• Brazilian and UK equities stand out as attractively valued for investors seeking real income yields and inflation protection.
• Real estate investment trusts. REITs currently offer moderate but compelling dividend yields. Still, be wary of their sensitivity to economic downturns and the challenges they face when funding conditions change.

In today’s market, income generation requires a dynamic approach.

The right mix of growth and defensive assets can help income investors protect the purchasing power of interest payments when inflation rises. With risk scoring tools, advisors can accurately assess investment opportunities and make decisions that manage downside risk while preserving upside ability.

Advisors who diversify their clients’ portfolios—while keeping a close eye on valuation and risk—stand the best chance of turning today’s yield offers into lasting, resilient income streams.