By Steve Garmhausen

Where have all the good fixed-income opportunities gone? In recent months tightening credit spreads, fluctuating interest rates, and other factors have made traditional fixed income like Treasuries, corporate bonds, and high-yield paper less attractive given their risks. That has caused income-focused investors to become selective as they search for sources of yield to beat inflation and meet their cash flow needs. For this week's Barron's Advisor Big Q, we asked a panel of investment professionals where they're finding attractive risk-adjusted yield now.

Kara Murphy, CIO, Kestra Investment Management: We want to avoid long-dated Treasury issues. We think in the belly of the curve you have much less risk of, let's say, the Fed making a policy mistake and cutting too quickly. And you can get some benefit from lower short-term interest rates, and you have some nice absolute yields there. We prefer corporates versus high-yield bonds, because if you look at incremental spreads, you're just not getting paid very much to take that extra risk. We'd rather have a high-quality corporate from a company we think is going to be very able to pay back their debt even in a stressed economic environment. Another area where we feel pretty comfortable, and is more of a tactical bet, is in the muni world. In 2022 munis significantly outperformed their corporate counterparts, and we've since seen a lot of that trade reverse. Part of it is policy induced: There has been increased concern about the credit quality of some of these issues as federal spending, which is a big input to state and local governments, comes down. But while the performance of those munis has really declined, we think that concern is overdone. It's an area we think is quite attractive.

Stephen Tuckwood, director of investments, Modern Wealth Management: One area we like for tactical allocations is private real estate debt, where the equity owner is the borrower. We like private real estate debt because the underlying collateral has repriced over the past several years. Commercial real estate, private real estate equity, went through a tough cycle after the peak in late 2021 with Fed hiking and Covid, and assets were revalued across the board. Let's say on average there has been a 20% correction from peak to present prices. So if it's a new deal, it's got a new equity cushion that protects us as the lender. [Corrected valuations mean there is less risk that the loan will exceed the value of the collateral in case of default or further price declines.] And typically with these types of transactions there had been a regional bank involved as the lender. But regional banks have stepped away from that market, creating an opportunity for nontraditional lenders to step in and fill that void. So it's an interesting place to get some nice yield in the high-single-digit realm, arguably with collateral behind that is going to have some resiliency if we go into an economic downturn over the next 12 to 24 months.

Lawrence Gillum, chief fixed-income strategist, LPL Financial: Given where equity valuations are right now, we think there are a lot of opportunities within the fixed-income market. We still like things like Treasuries and corporate bonds and mortgage-backed securities that are yielding from 4.5% up to 5%. Preferreds are another asset class that's getting you 5.5%, 6% types of yields. And from a tax-equivalent basis, munis look really attractive right here, and not just for the highest-tax-bracket investors; just given where tax-equivalent yields are, we think munis are really attractive at these levels.

On the riskier end of the spectrum, there are always things like high-yield bonds. They're yielding 6.5%, and up to 7% in some pockets of the market. Defaults are relatively low. There have been periods where high-yield bonds are priced to perfection in front of a weakening economy, and while markets are priced to perfection, we think the economy is going to be OK. Spreads aren't great, so valuations are pretty stretched. You'll probably get a little volatility like you would in the equity markets. But for investors who can stomach a little volatility, high-yield bonds are still an option. And of course if you hold them to maturity, you'll get that income regardless. You could also look overseas: We've seen global yields back up a lot over the past couple of months. So there's still some decent income over there.

Aleksandr Spencer, chief investment officer, Bogart Wealth: I like collateralized loan obligations; one ETF that we like to use is something like [the Janus Henderson AAA CLO ETF]. You get a pool of loans there, and you're getting decent yields around 5.5%, with a tenth of the risk of the S&P 500. This is a step up from, let's say, a money market. Now, I can get a little bit more than that by going into something like short-term high-yield bonds, with maturities of one to three years. There you're getting, let's call it 7% yields give or take.

One thing that we like using quite a bit is structured notes. I don't think a lot of advisors use structured solutions; they're a little more complicated and perhaps harder to scale for some. But by putting together the mix of bonds and options, you're targeting 7% to 10% yields. It's all based on the volatility you get in the market, and you can put a layer of downside protections onto it. This will get you closer toward equity like returns while staying away from the equity-like risk. We're still operating in a higher-yield environment given where Fed benchmark rates are, so things like money markets offer decent yield. But if you're trying to take on a little bit more, there are other ways to source yield and still be in a relatively safe space.

Brian Gamble, portfolio manager for fixed income, First Long Island Investors: Short term, I prefer Treasuries for taxable accounts. You could potentially pick up some yield in money markets, but not always enough to cover the tax discrepancy for a taxable investor, but for a tax-deferred account, that makes sense on the shorter end. On the longer end, especially for investors in higher tax brackets, tax-free municipals are kind of a no-brainer right now. Despite a recent rally, they're still very attractive in our eyes relative to corporates. We tend to focus on building a ladder from the medium to longer term. We don't typically go out to 20- or 30-year bonds.

We tend to buy bonds based on a high coupon with a yield-to-call that we find attractive. That's been the sweet spot in the municipal market. And we obviously take into account tax residency for the client. You're now able to garner yields on high-double-A or triple-A pieces north of 4%, tax-free. A month or two ago we were getting closer to 5%, which equates to north of 7% on a tax-equivalent basis. Obviously you have to keep diversification in mind, among issuers, among states so you don't have a state income tax concern. That high-quality municipal space longer term for taxable investors is in our opinion kind of a no-brainer.

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October 01, 2025 16:43 ET (20:43 GMT)

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