4% Yields Are Back. No What?

• Fixed income has returned as a source of steady income. Around 80% of global bonds now yield over 4% (BlackRock Investment Institute), a level not seen in over two decades. This is creating opportunities across short-term government debt, select credit, and high-quality securitised products.

• The macro conditions have changed. Growth has stayed firm, inflation remains above target, and fiscal pressures are growing. Central banks are unlikely to cut quickly or deeply, which makes short and medium-term paper more attractive than long bonds.

• We’re watching how supply dynamics, rate expectations, and uncertainty around policies are affecting the structure of returns. In this environment, we think the best strategy is to stay liquid, avoid unnecessary duration, and build diversified income exposure from the ground up.

Not All Income is Equal

• After years of low or negative yields, investors no longer need to stretch for return. Short-dated Treasuries and 2–5-year government bonds in developed markets offer yields above 4%, often with lower volatility than longer maturities. Mortgage-backed securities are also providing a stable carry opportunity, with spreads still wider than pre-pandemic levels.

• Credit spreads remain tight, but balance sheets have proven resilient. European investment-grade debt stands out, particularly in banks and core infrastructure names, where policy clarity is stronger than in the US. Agency MBS also continues to offer a compelling balance of yield and quality. In emerging markets, improving current accounts and real policy space have helped local debt regain attention, particularly in Brazil, Mexico, and India.

How We’re Positioning at Cordoba

• At Cordoba, we are leaning into emerging markets more directly. Countries like Malaysia, Brazil, and Mexico are high-conviction names in our model allocations, offering a mix of positive real yields, credible central banks, and improving fundamentals. In particular, Malaysia’s local bond market is supported by strong onshore demand and a stable fiscal anchor, while Brazil and Mexico are benefiting from foreign interest in local currency paper and a better FX cushion.

• We continue to build income exposure starting with 2–5-year US and European government bonds, giving us both yield and flexibility. We’ve added agency MBS for its solid carry and ballast-like characteristics.

• In credit, we are selective. We hold core exposure to European investment-grade names in infrastructure and banks where yields still offer value. We’ve reduced our long-dated US credit holdings, where spreads look thin and the macro fundamentals remains cloudy.

• We will continue to monitor the situation. Our Senior Quantitative Analyst, Zifan Li, is building out the Cordoba Terminal, a proprietary model that’s helping us think more clearly about long-term income allocation and really test the assumptions behind it. We’ll be publishing more on this soon, so keep an eye out.