5 Bond Funds With Quietly Increasing Income

In the bond market, things sometimes move slowly enough that we must step back to appreciate how much has changed. So, I thought I’d look to see which funds have seen the biggest increase in 12-month yield over the past year.

I should add the caveat that you don’t want to start a screen for funds by ranking on yield or make yield the focus of your research. Some of the worst funds have large yields because they assume huge risks to draw investors. You need to factor in all the important fundamentals, such as the strategy, the managers, the parent company, fees, the risk/reward profile, correlation with other holdings in your portfolio, and taxes.

But all the funds I’m highlighting have Morningstar Medalist Ratings of Gold, Silver, or Bronze, which means they have decent fundamentals. And you might not have noticed how much yields have risen.

The fund with the biggest jump in yield is Silver-rated Pimco Global Bond Opportunities (U.S. Dollar-Hedged) PAIIX. The fund’s yield was 5.4%, as of Sept. 30, 2026, up from 2.17% a year earlier. There are two big drivers of the jump. First, management boosted the fund’s duration (interest rate risk) by nearly 2 times, to 4.6 years in 2025 from 2.6 years in 2023. More interest rate risk means more yield most of the time.

However, the managers shifted duration up and down during the first half of 2026. Duration was 4.4 years at the end of July, and the 30-day yield (or SEC yield) was 4.1% at the end of September. The 30-day yield is telling us that, as the fund is positioned now, the next 12 months won’t see quite as much income as the past 12 months. Interest rates have surged in many of the largest economies owing to inflation concerns, including those of the US, Japan, the UK, and Germany.

Gold-rated Vanguard Total International Bond ETF BNDX saw its yield rise to 4.7% from 1.9%. In this case, the story isn’t duration but a declining US dollar. Rising inflation, growing federal deficits, and slowing economic growth have hurt the dollar, making the yield on this portfolio of nondollar debt look larger after currency translation. (Its open-end version Vanguard Total International Bond Index VTABX enjoyed a comparable boost to yield.)

Gold-rated Pimco 1-5 Year U.S. TIPS Index ETF STPZ saw its yield more than double to 4.9% from 2.3% because Treasury Inflation-Protected Securities adjust their yields based on changes to the Consumer Price Index. More inflation means more yield. Note that TIPS funds belong in tax-sheltered accounts because you will get taxed right away on upward yield adjustments.

Gold-rated iShares Core International Aggregate Bond ETF IAGG also saw its yield more than double, to 4.6% from 2.1%. Again, this is a currency story. The SEC yield of 3.2% suggests income is coming down to earth, however.

Bronze-rated Vanguard Short-Term Bond ETF BSV and its open-end form Vanguard Short-Term Bond Index VBIRX both enjoyed about 200 basis points of yield—up to about 4.1%—since the short end of the yield curve surged. The fund’s SEC yield is now around 4.9%, suggesting you might get even more than the 4.0% 12-month yield over the next 12 months. It illustrates the extra yield found at the short end of the yield curve today.

If you were ignoring this part of the bond market, you might want to add short-term bonds back to your portfolio to bridge the gap between money markets and intermediate funds on yield and interest rate risk.

This article first appeared in the September 2026 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.