Our first chart looks at the impact of starting yields on subsequent returns. Investors are aware of the impact of equity valuations on subsequent medium-term returns, and the same dynamic is true in fixed income. After the period of low interest rates following the global financial crisis, government bond yields have now returned to a more normal range. This reset in yields significantly improves the return profile of fixed income, as higher starting yields have historically led to higher subsequent returns. From current starting yields, investors have typically enjoyed annualised returns of around 6% over the subsequent five years.

Global government bond yields and subsequent 5y returns

%, subsequent return is % change annualised

Higher developed market government bond yields have fed through to the broader universe, and yields are attractive in most major sectors. Higher yields give investors a wider range of options to pick from when building diversified fixed-income portfolios. Positive yields in all major government bond markets allow investors to reduce exposure to any specific country risk, while credit markets offer additional yield for those looking to maximise income. With bond markets having to step in to discipline government spending plans, there remains the risk of individual sovereign market volatility, which will require nimbleness to navigate. Investors should look to allocate to managers who can take advantage of the full menu on offer to deliver better risk-adjusted returns.

Fixed income yields

%

Source: Bloomberg, ICE BofA, J.P. Morgan Economic Research, LSEG Datastream, J.P. Morgan Asset Management. Return correlation to MSCI ACWI is calculated using monthly total returns since 2008. Indices used are as follows: Euro IG: Bloomberg Euro-Aggregate – Corporate; Global IG: Bloomberg Global Aggregate – Corporate; UK IG: Bloomberg Sterling Aggregate – Corporate; US IG: Bloomberg US Aggregate – Corporate; Convertible bonds: Bloomberg Global Convertible Rate Sensitive hedged to USD; Euro HY: ICE BofA Euro Developed Markets Non-Financial High Yield Constrained Index; Global HY: ICE BofA Global High Yield Index; US HY: ICE BofA US High Yield Constrained Index; EMD corporate: CEMBI Broad Diversified; EMD local: GBI-EM Global Diversified; EMD local – China: J.P. Morgan GBI-EM Broad Diversified China; EMD sovereign: EMBI Global Diversified; EMD sov. IG: EMBI Global Diversified IG; EMD sov. HY: EMBI Global Diversified HY. Past performance is not a reliable indicator of current and future results. Yields are not guaranteed and may change over time. Guide to the Markets - EMEA. Data as of 26 February 2026.

Global rates volatility remains elevated as governments grapple with fiscal realities, and markets shift their focus to whichever country is currently in the spotlight. However, these pressures are reflected in higher starting yields, which provide a meaningful buffer against bond losses. The yield cushion on global government bonds, which shows how much sovereign yields need to rise over the next 12 months before capital depreciation wipes out one year’s worth of income, has risen from its pre-pandemic low to around 45 basis points. As a result, fixed income investors benefit from a substantial buffer against ongoing policy-related uncertainty.

Global government bond yield cushion

Basis point change over 12 months

Corporate credit spreads remain tight across all major credit markets. However, these rich valuations are underpinned by strong fundamentals. Corporate balance sheets are healthy and global growth should support corporate earnings. Spreads typically remain tight for extended periods of time and generally only widen when corporate earnings come under pressure. While there is little room for spreads to tighten further, and investors should expect income to form the bulk of credit returns, the supportive economic backdrop means spreads are also unlikely to widen significantly. This environment should give investors confidence in stepping out into credit to take advantage of the additional income on offer.

US earnings drawdowns and US investment grade spreads

% drawdown from previous peak (LHS); basis points (RHS)

Our final chart considers the total return that investors would receive from government bonds, depending on how yields move over the next 12 months. If the economic outlook deteriorates, the pressure on central banks to cut interest rates will only intensify. In this scenario, bond yields still have significant room to fall from current levels. In the event that 10-year government bond yields fell by 100 basis points over the next 12 months, investors could expect a return of more than 10%. This return would provide the kind of meaningful diversification against equity losses that multi-asset investors rely on when constructing balanced portfolios, and which has not been available for several years given the very low level of yields.

Government bond return scenarios

%, total return over 12 months