Market Decode™: Using bonds to help steady your portfolio in 2026
When markets get choppy, investors may look to fixed income as part of a portfolio that can act as ballast.
WITH GEOPOLITICAL EVENTS AND ARTIFICIAL INTELLIGENCE among the factors driving rounds of market volatility in early 2026—and with risks expected to persist in a midterm election year—investors may want to take a closer look at the role fixed income plays in their portfolio strategy. Just as ballast steadies a boat, bonds can potentially help provide stability through unpredictable market conditions, as the Chief Investment Office (CIO) outlined in its 6 portfolio strategy ideas for 2026.
With global capital flowing into the U.S. and real yields on Treasurys remaining meaningfully higher than in other major economies, fixed income is positioned to offer diversification as well as a measure of predictability amid ongoing uncertainty. For investors holding elevated levels of cash, bonds may also offer opportunities to lock in yields before interest rates potentially move lower.
3 fixed-income asset classes to know:
- U.S. Treasury notes and bonds: Initial maturities range from 2-10 years (notes) and 10-30 years (bonds). Treasury notes and bonds pay a fixed coupon semiannually.
- Municipal bonds: Loans made to a unit of state or local government. Coupons are typically paid semiannually. The municipal bond market is divided into industry segments based on how the borrowed funds are used. Industry segments include: education, healthcare, electric power, transportation, housing, utilities and general purpose.
- Investment-grade corporate bonds: Also known as high-grade corporate bonds, these are effectively IOUs that represent the issuing corporation's promise to repay the loan face amount with interest, within a set period of time.
“An allocation to fixed income investments – focused on credit quality and stable income above inflation – may be just the ballast you need,” explains Matthew Diczok, the CIO’s Head of Fixed Income Strategy, in the video above. In a period marked by uncertainty and volatility, bonds can potentially help keep portfolios moving forward.
A Private Wealth Advisor can help you get started.
Important disclosures
The opinions expressed are as of 3/4/2026 and are subject to change.
Investing involves risk, including the possible loss of principal.
Past performance is no guarantee of future results.
Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT). Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).
