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LivestreamMenuA recent runup in Treasury yields, and a planned intervention by the Treasury Department, rattled the bond market last week, but opportunities for portfolio income abound for investors. Last week, the yield on the 30-year Treasury bond topped 5.31% , its highest level since 2007, while the yield on the 10-year note surpassed 4.7%. Bond yields move opposite to prices. Long-dated issues are especially sensitive to fluctuations in rates, a concept known as duration. The recent sell-off in long-dated bonds led the Treasury Department to announce it would more than double the size of government bond purchases , targeting the long end of the yield curve, a move that offered short-term relief to the fixed income market. US30Y YTD mountain U.S. 30-year yield in 2026 “There are a lot of things going on to cause those long-term yields to rise a little bit,” said Paul Olmsted, principal in fixed income strategies at Morningstar, citing the national debt recently rising to $40 trillion, a flood of corporate bond issuance from hyperscalers to fund the artificial intelligence buildout effort and inflation worries. “At the same time, we have talked about the benefit of owning higher yields, and as much as I like to say, ‘Own higher yields,’ you can do it in a way that just benefits bondholders for the long term.” Yields were lower on Tuesday as oil prices cooled, with the 30-year Treasury bond down more than 5 basis points to trade at 5.176% and the 10-year down 6 basis points at 4.643%. Yields rose one or two basis points on Wednesday. Selective duration, diversification As long-dated Treasurys were seeing the most dramatic rise in yields last week, meaning their prices were declining, the intermediate part of the yield curve remained attractive. “We are finding opportunities across the yield curve and would pivot focus toward the front end and intermediate part of the curve,” said Brad Collins, senior fixed-income client portfolio manager at Vanguard. In particular, he mentioned maturities in the range of one- to 10 years. “We’re focused on building portfolios from the bottom up and focused on high-quality carry,” he added. Active managers at Vanguard have been looking for fixed income opportunities in the banking sector, but they also like mortgages and asset-backed securities, Collins said. Similarly, Olmsted of Morningstar noted that the duration investors would find in the core bond space – which also tends to be intermediate term – also works as a diversifier. “You see what the stock market is doing and that longer duration is still acting as a better diversifier if there is a correction in the stock market.” “If things are really going south, you can still put money in Treasurys and earn what is really good yield,” he added, noting that the 5-year and 10-year notes, as well as offerings on the front end of the curve, have compelling yield above 4% and can offer downside protection against market risk. ETFs that fit the bill in terms of intermediate duration include the Vanguard Core Bond ETF (VCRB) , which has a 30-day SEC yield of 4.88% and an expense ratio of 0.1%, and the Baird Intermediate Bond Fund (BIMIX) , with an SEC yield of 4.43% and an expense ratio of 0.3%. Hedging out future cash flows In the name of diversification, it may make sense to add some exposure to bonds outside of the U.S., according to Donald Calcagni, chief investment officer at Mercer Advisors. “We think there is value in investors looking at non-U.S. debt, [and] non-U.S. assets broadly, given what is likely to be continued erosion in the value of the U.S. dollar vis a vis other currencies,” he said. “There is value to diversification that we think makes sense.” Taking a diversified approach would be the best way to get that exposure, avoiding issues that are below investment grade and sticking largely with developed markets, Calcagni added. He also likes preferred securities and Treasury inflation-protected securities. Income-focused investors who have a specific cash-need in mind and a certain time horizon can also use liability-driven investing to take advantage of today’s higher yields. For instance, an investor who knows they will have to fund four years of expenses can purchase several bonds with corresponding maturities and lock in yields, Calcagni said. “Many retirees can do the same thing; you’re hedging out future cash flows,” he added. “It’s easier to do that when you have a higher rate environment.”Read More
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