BlackRock says these bonds could be winners for income investors in 2026
BlackRock’s Russ Brownback believes fixed-income investors are heading into the best environment he’s ever seen in his nearly four decades in the business. The economy will benefit from an artificial-intelligence driven productivity boom, yields are still at attractive levels and shifts in the bond market are creating opportunities to pick winners, said Brownback, the firm’s deputy chief investment officer for global fixed income. “It was exciting to return to a real income regime a couple of years ago, but now, when you get all the dispersion underneath all that, it’s the best environment I can ever remember,” he said. While overall credit quality has been good, there have been rising pockets of distress, he explained. “You saw little bits and pieces of that with scares about defaults and credit quality back right around the time of third-quarter earnings releases,” Brownback noted. “We think that will proliferate until such time as monetary policy actually becomes accommodative and not restrictive.” The Federal Reserve cut interest rates by a quarter percentage point earlier this month, its third since September, but signaled a slower pace ahead. Interest rate futures today signal that traders are pricing in high odds that rates remain steady at the January and March Fed meetings, according to the CME FedWatch tool . Therefore, Brownback is taking advantage of not only the opportunity to earn attractive income, he’s tactically trading around the dispersion opportunities to add additional value. Finding winners Entering 2026, Brownback is bullish on agency mortgage-backed securities (MBS), which are “very, very cheap” compared to investment-grade corporate bonds. “When you consider the highly liquid nature of that sector and the very high quality orientation of the agency mortgage backed securities market, that’s where we like our high quality credit,” he said. AGZ YTD mountain iShares Agency Bond ETF year to date Brownback also sees opportunities to “credit pick” in securitized credit, including non-agency MBS, commercial mortgages, collateralized loan obligations and asset-backed securities. BlackRock has significant exposure across the market, he said. For instance, the single-housing market in non-agency MBS can be different in the Southwest than the Midwest, he said. “Picking which geographies, which [mortgage servicing assets] to be in, which part of the cap stack to be in, there’s tremendous opportunities to stock pick or credit pick, right down to the CUSIP level,” Brownback said, referring to the number that identifies each individual bond or security. The Kellogg School of Management MBA is also searching for that dispersion in the high-yield market in the United States, Asia and Europe. “All of those things are, in a diversified way, going into contributing toward again, for the second year in a row, what we think is going to be equity-like returns for very high quality fixed income portfolios,” Brownback said.
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