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According to Schwab:
Bonds
2026 Outlook: Corporate Credit
We continue to suggest an up-in-quality fixed income bias for the short run, but investors can still consider some of the riskier parts of the fixed income market in moderation.
December 4, 2025•Collin Martin
Key takeaways
We are maintaining our "up-in-quality" theme given low credit spreads. Investment-grade corporate bonds still appear attractive, however, as their yields are generally near the upper end of their 15-year range.
High-yield bonds and bank loans can be considered in moderation, but rich valuations make us a bit cautious. We prefer high-yield bonds over bank loans for investors willing to take extra risks.
Preferred security prices have declined lately, making the entry point for long-term investors a bit more attractive. They can make sense for investors in high tax brackets given their potential tax advantages.
It has been a good year for most corporate bond investments. Rate cuts by the Federal Reserve helped pull up the prices of Treasuries and other high-quality bond investments, as bond prices and yields generally move in opposite directions. Credit concerns have weighed on the prices of some of the riskier bond investments like high-yield bonds, bank loans, and preferred securities, however. For most corporate bond investments, income payments have generally been the key drivers of returns, and those income payments have helped the riskier bond investments still deliver positive returns year-to-date, helping to offset some of the price declines.
Coupon payments have been the key driver of returns for most corporate bond investments this year
Chart shows year-to-date returns for high-yield corporate bonds, investment-grade corporates, US Treasuries, bank loans and preferred securities. The bars representing returns are color-coded to show how much of the return (both positive and negative) was due to price return and how much was due to coupon return.
Source: Bloomberg, as of 11/28/2025.
Indexes representing the investment types are: High-yield corporates = Bloomberg US Corporate High Yield Index; Investment grade corporates = Bloomberg Investment Grade Corporate Index; US Treasuries = Bloomberg US Aggregate Treasury Index; Bank loans = Bloomberg US Leveraged Loan Index; Preferred securities = ICE BofA Rate Preferred Securities Index. Indexes are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly. Past performance is no guarantee of future results.
We expect a similar theme in 2026, with income payments likely being the key driver of total returns. Default risk should weigh on the high-yield bond and bank loan markets, however, and price gains for both investments may be tough to achieve over the course of the next 12 months.
Total returns are important considerations for investors, but we think the actual yields matter more. Over time, bond prices can rise and fall in the secondary market, but barring default, they should mature at their par value. The income earned tends to be the key driver of returns when held for longer investing periods.
Yields for higher-rated investments still appear attractive today. The average yield of the Bloomberg US Corporate Bond Index is below 5%, after hitting a peak of 6.4% in late 2023, but is still near the high end of its 15-year range. It's also well above its 15-year average of 3.6%.
High-yield bond yields don't appear as attractive when viewing them through that 15-year lens. The average yield of the Bloomberg US Corporate High-Yield Bond Index is well below its 15-year peak, and its average yield of 6.6% at the end of November 2025 is now below its 15-year average.
In short, investment-grade corporate bonds and preferred securities still offer average yields near the upper end of their 15-year range, but high-yield bond yields are below their 15-year averages. Given that trend, we still suggest investors generally favor an up-in-quality approach to corporate bond investing.
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