Structural Shifts Occurring across Bond Markets
There are indications that the era of ultra-low yields may be behind us. Fixed income markets are now operating in a higher-yield environment, marking a structural departure from the decade that followed the 2008 Global Financial Crisis (GFC). The combination of higher bond yields, more persistent inflation dynamics and heightened geopolitical uncertainty has changed how market participants evaluate fixed income categories, compare risk and performance characteristics, and assess the tools used to measure bond markets. Yet amid this transformation, fixed income continues to be one of the largest and most dynamic segments of global capital markets, with innovation across public and private markets broadening the range of index, data and product solutions available to market participants.
In this paper, we examine four structural developments shaping fixed income markets:
- Income as a key performance driver: As tighter credit spreads limit opportunities for price appreciation, income has become a leading contributor to bond performance across asset types, which is supported by the highest yields in more than a decade.
- Redefining core fixed income: Shifting characteristics of sovereign bonds have elevated investment grade corporate credit’s role in core bond universes.
- Private markets are growing. Liquidity matters more: As market participants allocate more capital to private credit, liquid fixed income instruments, particularly exchange traded funds (ETFs), are increasingly important for portfolio flexibility and liquidity management.
- Evolving monetary policy and currency hedging dynamics: The divergence in global central bank policy is creating a wider spread of outcomes across fixed income markets. Combined with changing currency-hedging economics, this has driven stronger returns in selected local bond markets and renewed investor interest in diversifying away from U.S. assets.
As these trends persist, market participants need tools to define, measure and compare fixed income universes. We also explore the role that transparent and objective indices, including S&P Dow Jones Indices’ (S&P DJI's) comprehensive iBoxx® bond and loan indices, which launched 25 years ago, play in helping market participants classify assets, evaluate performance and analyze evolving dynamics.
At S&P DJI, one of our missions is to provide transparent, rules-based fixed income indices designed to measure bond and loan markets. By combining deep market capabilities across data and pricing, we design indices that aim to help market participants understand, track and monitor the trends shaping the global fixed income landscape. As fixed income markets continue to evolve, we convert fixed income market heterogeneity into a transparent, rules-based universe that can be measured, replicated and referenced consistently by every market participant.
Key Fixed Income Developments and How to Track Them with iBoxx Indices
1. Income as a Key Performance Driver
With yields at materially higher levels than much of the post-GFC period and with tighter credit spreads, income has moved back to the center of how market participants evaluate bond and loan markets, making the source and structure of that income more important. In a space where price growth may be less significant and rate volatility can remain elevated, income has become an increasingly important component of performance.
The impact of an income-generating allocation is shaped not only by the level of yield it delivers, but also by how that source of income behaves alongside the rest of the portfolio, including its correlation, volatility and diversification characteristics. For example:
