IN FOCUS6-8 min read

Regime shift: Investing in a new Fixed Income world

We believe this year’s market environment will feature less central bank intervention, leading to more volatility than the prior decade. Increased volatility will cause more disruptions and dislocations – and more instances for a dynamic multi-sector manager to add value.



US Multi-Sector Fixed Income team

The rapid rise in Treasury yields last year has attracted the pen of many opinions and the resulting negative returns, the worst in over 200 years, have inspired even more debate. This unprecedented market move is now in the rearview mirror and it is time to assess today's fixed income landscape and outlook. It has been more than a decade since we have seen yields at this level and it has been some time since investors have considered Treasury bonds an attractive option for income (see Figure 1).

Figure 1: 10-Year Treasury yield vs. Federal Funds target rate*


There has been a significant regime shift at the Federal Reserve (“the Fed”) over the last nine months. The accommodative monetary policy that investors have come to expect since the Global Financial Crisis has ended as the Fed is now actively trying to temper growth to lower inflation – even if it means causing a recession. Over the last decade, The Fed has cut interest rates to record lows, which produced an environment that forced investors  to accept more risk by moving down the credit spectrum, further out the yield curve or into less liquid assets to achieve their return targets.

The backdrop of fixed income looks much different today. Investors now can invest in higher quality parts of the market, like short duration investment grade corporates, Treasuries or agency backed mortgages, and earn attractive yields. In fact, those are the segments of the market that we believe are the most attractive as growth concerns and rising expectations of a recession overtake the focus of inflation that has persisted for the last 12-18 months.

It is important to note the global regime shift taking place today results from a significant change in both monetary and public policy. Low inflation, cheap/abundant labor and energy have bolstered the last few decades. These trends are changing and have structural implications for markets. A regime with higher input costs (whether due to labor or energy) means that inflation could run structurally higher, which will cause monetary policy to remain more hawkish and lead to shorter boom/bust cycles. This volatility and higher cost of capital will have a material impact on business investment and the allocation of resources.

We believe the market environment over the next year will feature less central bank intervention that will lead to more volatility than the prior decade. Increased volatility will cause more disruptions and dislocations and therefore more instances for a dynamic multi-sector manager to add value. Our value-driven philosophy combined with our opportunistic, high conviction approach lends itself to shift allocations towards pockets of promise. We are unbiased as to where those opportunities arise, whether it be it in agency mortgage backed securities, municipals or corporate bonds. We will deploy capital wherever we see the most attractive relative value prospects. We possess a history of capitalizing on market dislocations and have been building liquidity across all of our strategies over the last several months. As the market morphs, we are ready to adjust our allocations. We accept short-term volatility and instead focus on longer term value propositions, which are reflected in our attractive performance over the last three-, five- and ten-year timeframes.

In addition, while the majority of managers are positioned to short index duration, our benchmark-aware methods have always maintained a neutral stance on duration. Our focus is to add alpha through our ability to identify the inflection points in markets and to allocate capital to those undervalued sectors and issuers. We have demonstrated an ability to do this successfully during various periods of volatility. The following (see Figure 2) are a few examples: Taper Tantrum (2013), energy crisis (2015-2016) and most recently the pandemic (2020).

Figure 2: Core strategy allocation (in market value %) relative to the benchmark vs valuations


Source: Bloomberg and Schroders. Representative Value Core account; OW/UW = overweight/underweight. Historical trends should not be solely relied upon to evaluate current market activity.

It is clear that the current environment and the Fed’s aggressive policy this year have led to a different market than the one we experienced this last decade. We believe investors should opt for a dynamic and active manager with proven credentials to capitalize on market dislocations during periods of elevated volatility. This could lead to outperformance over the coming years.

Subscribe to our Insights

Visit our preference center, where you can choose which Schroders Insights you would like to receive

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.


US Multi-Sector Fixed Income team


In focus
Fixed Income
Market views
Regime shift
Follow us

Please consider a fund's investment objectives, risks, charges and expenses carefully before investing.

The website and the content included is intended for US-based financial intermediaries (and their non-US affiliates) on behalf of those of their clients who are both (a) not “US persons” as that term is defined in Rule 902 under the United States Securities Act of 1933, as amended (the “1933 Act”) and (b) “non-United States persons” as that terms is defined in Rule 4.7(a)(vi) under the Commodity Exchange Act of 1936, as amended. None of the funds described herein is registered as an “investment company” as that term is defined in the United States Investment Company Act of 1940, as amended, and shares of the funds described herein have not been and will not be registered under the 1933 Act or the securities laws of any of the states of the United States. The shares may not be offered, sold or delivered directly or indirectly in the United States or for the account or benefit of any “US person.”

The information contained in this website does not constitute an offer to purchase or sell, advertise, recommend, distribute or solicit a subscription for interests in investment products in any Latin American jurisdiction where such would be unauthorized. The information contained in this website is not intended for distribution to the public in general and must not be reproduced or distributed, entirely or partially to any individuals who are not allowed to receive it according to applicable legislation. The investment products and their distribution may not be registered in Latin America, and therefore may not meet certain requirements and procedures usually observed in public offerings of securities registered in the region, with which investors in the Latin America capital markets may be familiar. For this reason, the access of the investors to certain information regarding the investment products may be restricted. Financial intermediaries and Advisors must ensure the information provided in this website is appropriate and suitable to the receiver’s domicile and jurisdiction and according to the applicable legislation.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security/sector/country.

Issued by Schroder Investment Management (Europe) S.A., 5 (“SIM Europe”), rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada.  SFA markets certain investment vehicles for which other Schroders entities are investment advisers.

Schroders Capital is the private markets investment division of Schroders plc.  Schroders Capital Management (US) Inc. (“Schroders Capital US”) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).  It provides asset management products and services to clients in the United States and Canada.  For more information, visit

SIM (Europe), SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.