BlackRock’s Brownback: We’re Still in a ‘Golden Age’ of Bond Investing

Key Takeaways

• Bond yields remain attractive, calling for income, not price appreciation from big bets on changes in interest rates, Brownback says.
• Brownback prefers bonds with intermediate maturities, which offer attractive yields with reduced volatility, and corporate debt over Treasuries.
• European yields have also risen amid volatility in the US fixed-income market; Brownback considers European sovereign bonds to be attractive.

Bond markets have been caught up in the tariff-driven volatility, but Russell Brownback, co-portfolio manager of BlackRock Strategic Income Opportunities BASIX, sees opportunities amid the higher yields.

For the past week and a half, bond yields have whipsawed, first falling on President Donald Trump’s announcement of tariff hikes against dozens of countries and then rising sharply amid questions about the safe-haven status of US investments. The 10-year Treasury note was yielding 4.5% on April 11, up from 4.2% when Trump unveiled his expansive levies. At such levels, bond yields are well within the range of the past year but up sharply from last summer.

Brownback says the fundamental building blocks of a steady economy and bond market are still in place, even in the face of short-term uncertainty as President Trump’s new tariff regime threatens to upend US trade policy and stall economic growth. “Asset prices have dropped in deference to a slower-growth, faster-inflation outlook for this year in a very, very logical way,” he says.

That doesn’t mean, however, that Brownback is taking the market turmoil lightly.

“You do have to be on guard for shocks,” says Brownback, who is also head of global macro positioning within BlackRock’s global fixed-income team and a 16-year veteran of the firm. “But also, you don’t bet on shocks.”

“There’s going to be an uncertainty premium that remains in markets,” he says, which will likely stick around for a while. “We feel good about fundamentals, but we have a lot of respect for how markets can be very, very volatile.”

Bond Market Fundamentals Are Holding Up

Over the longer term, bonds held relatively steady in the first months of 2025, smoothing out volatility for equity investors while generating attractive returns in their own right. The Morningstar US Core Bond Index returned 2.78% for the first quarter, while stocks fell more than 4%.

Brownback says duration bets—bond market investments that pay off when interest rates rise and fall—don’t make much sense now.

What does make sense is leaning on the “income” part of fixed income—the coupon element of a bond portfolio, which pays investors a steady, reliable cash flow if a bond is held to its full maturity. “You haven’t been able to count on the bond market for income in a very long time,” Brownback says. “And now all of a sudden, yields, particularly at the front and the belly of the curve, are really attractive.”

A New Regime for Bonds

It’s a very different world for fixed income compared with a decade ago or even just a few years ago. Yields were stuck at historically low levels for years, starting with the 2008 financial crisis and continuing until after the covid-19 pandemic. In 2022, bond investors endured a painful bear market as the Federal Reserve began tightening monetary policy to combat runaway inflation.

But over the past few years, Brownback says, higher inflation and stronger economic growth have pushed yields higher. They’ve also flattened out the yield curve, with shorter-term yields reflecting the likely path of Fed policy and longer-term yields reflecting growth expectations.

“There’s an incredible opportunity to take advantage of a flatter yield curve and higher yields,” he says. “We call this regime the golden age of income.”

Right now, Brownback likes bonds near the belly of the yield curve—those assets with medium maturity dates somewhere around the five-year mark. When the yield curve is relatively flat like it is now, he says investors can pick up almost all the yield of longer-dated bonds while insulating themselves against the volatility that longer-term bond investors have to weather amid changing growth and inflation expectations. He sees the front end of the curve as “a little bit overbought” as investors have priced in more rate cuts over the past week.

Rather than Treasury bonds, his “sweet spot” is corporate credit and securitized assets, including investment-grade and high-yield corporate bonds across the US, Europe, and Asia, as well as commercial mortgage-backed securities, asset-backed securities, and non-agency-backed securities.

“When you put those things together in the front to the belly of the curve, you can create a very high-quality portfolio that has a very, very low level of implied volatility at a really high yield,” Brownback says.

He also sees opportunity—not a red flag—in the widening credit spreads that accompanied last week’s market turmoil, though he emphasizes that he wants to remain patient before seizing opportunities there. “Higher yields and wider spreads mean that the income [from bonds] is higher … that’s a good thing.”

Focus on Income, Not Duration

The way Brownback sees it, the yield curve is reflecting economic fundamentals fairly accurately, at least for now. That’s why he characterizes the rates market as being in “equilibrium.” Barring any huge change, Brownback doesn’t expect major moves in the curve from today’s levels.

With yields relatively high and steady and likely to remain that way, and the Fed’s forecasts credible, Brownback says he’s looking to bonds for income and not making what’s known in Wall Street lingo as a “duration bet.”

Duration is a measure of how sensitive a bond’s price is to changes in interest rates. As rates rise, bond prices tend to fall and vice versa. Bond managers can bet on the likely path of interest rates by buying bonds with a specific duration; if they expect yields to fall, for instance, they can buy bonds with longer durations and prices that are likely to rise significantly on that shift.

While duration bets were popular over the past two years, Brownback says focusing on income makes more sense in today’s environment. “The better opportunity is in harvesting the income of corporate credit [and] .ed assets that are built upon the Treasury curve,” he says.

Even as the market has swung wildly, Brownback says the Fed will likely be slower to react to changes in the outlook because inflation remains above target. “It’s a deceleration of growth against still-solid underpinnings with sticky, high inflation,” he explains. “In that environment for fixed income, we just want to own yield without making a big bet on interest rates.”

European Sovereign Bonds Look Attractive

Another major change in the bond market is unfolding across the Atlantic. Amid the ongoing conflict between Russia and Ukraine, new fiscal stimulus initiatives in Europe, and Germany in particular, are reshaping the outlook for the region.

This response “has changed the philosophy about fiscal policy in Europe in ways that are pretty profound and pretty historic,” Brownback says. He expects that the stimulus measures will likely boost private-sector investment and give growth in the region an overall boost after a decade of stagnation. “There is a sudden belief that growth can really accelerate [in Europe] based on this change in policy,” he says.

Within the bond market, Brownback expects faster growth to beget marginally higher yields. More government borrowing in that environment means more supply, which could also push yields higher.

He says European sovereign bonds look good, especially after hedging out foreign-exchange risk. That can add another 2% of yield in a US portfolio, give or take. When you take the German bund yield on a US dollar basis and compare it to other European credit assets, either investment-grade or high-yield, “we find them to be reasonably attractive,” Brownback says.

Last week, investors flocked to German bonds as US yields rose.

How to Invest in Bonds When the Outlook Is Uncertain

As equities sold off over the past few months, Brownback says his team tilted slightly more defensive and raised extra cash in its portfolios by selling positions in outperforming areas like European credit—a prescient move. “In deference to more uncertainty, we just adopted a slightly more cautious posture,” he says. “We’re feeling pretty good” about that decision, he adds, especially after this week’s tariff turmoil.

He’s prepared to be “very patient” before putting that cash back to work once some of today’s uncertainty lifts, even as credit spreads widen and valuations look more attractive after last week’s selloff.

That patience “can really reward you and make you feel front-footed when opportunities come up to take advantage of dislocation,” Brownback says he’ll be searching for the “efficient frontier of enough clarity about policy and the right valuation in markets” before redeploying that cash.

While it’s easy for investors to get discouraged in a more volatile market, Brownback also sees value in a glass that’s half full.

“We’ve had some corrections in markets throughout these periods of volatility and uncertainty over the last few years,” he says.

While a new economic or geopolitical shock could always derail the outlook, Brownback is confident in his process.

“Where optimism paid off in those previous bouts of volatility, optimism is going to pay off again,” he says.