Quarterly review: Volatility Creates Opportunity

Noah Wise: What stood out most was that bond yields moved higher in nearly every major global fixed income market, but not always for the same reasons. In some markets, it was primarily due to inflation or elevated supply, while in others it was due to higher real growth rates. Credit risk was one factor that wasn’t driving up yields, as credit spreads generally remained tight, reflecting a market that still sees a constructive economic backdrop.

The overall combination created significant global bond market volatility, which led to more opportunities for fixed income investors with a broader and more flexible approach.

As you look ahead to the fourth quarter, what are you most focused on?

As we move into the fourth quarter, our focus remains on prioritizing flexibility over prediction and making the most of the opportunities that present themselves to us on any given day. One of the most important developments we've seen this year is that fixed income is once again generating meaningful income. That's important because attractive income can help support returns even as markets continue to debate where rates will ultimately shake out.

At the same time, we're balancing the yield-rich opportunity set against credit spreads that have remained relatively tight and range-bound. While higher yields have improved the absolute return potential, investors are still not being paid substantially more to take incremental credit risk. As a result, we continue to emphasize higher-quality carry and diversified sources of income rather than reaching for yield. Our largest areas of conviction remain in securitized sectors, particularly agency mortgages and select asset-backed securities. Interestingly, these are areas where we were lightening up on early in the year, but due to more recent underperformance, they are now starting to look more attractive again when compared with many corporate credit alternatives.

We're also maintaining a flexible approach to duration. While higher yields are enticing, uncertainty around the geopolitical landscape, inflation, and monetary policy argue against taking an overly strong directional view. We continue to look for opportunities both in the U.S. and globally while remaining tactical and willing to adjust exposures as relative values evolve. 

What is your investment playbook in this environment?

Our philosophy remains the same: focus on flexibility, diversification, and disciplined security selection. Markets today are grappling with a wider range of possible outcomes than they've faced in years. Whether the discussion pertains to geopolitics, inflation, tariffs, AI-related investment, or central bank policy, investors have become less certain that any single outcome is inevitable. We believe that's an environment that rewards active management. Rather than relying on one macro call, we're using multiple levers across securitized assets, global rates, and credit to pursue the most attractive risk-adjusted opportunities.

As we head into the final quarter of the year, we expect markets to remain focused on growth expectations, inflation trends, and the growing supply of debt from both corporate and government issuers. While uncertainty may create bouts of volatility, it is also creating a more attractive environment for active bond investors. Ultimately, we believe today's yield environment provides an incredibly strong foundation for fixed income in the last quarter of 2026 and into 2027.