Chart: Rising rates challenge core fixed income
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Chart of the Week
Oct 23, 2026
2 MIN READ

Fed rate hikes challenge core fixed income

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Recent Fed cycles highlight core bonds’ sensitivity to tightening: The Agg returned -4.1% annualized during hikes versus gains during holds and cuts.
authors
Christopher Bole
Christopher Bole
Vice President, Financial Writer
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Annualized core fixed income returns by Fed rate cycle (Dec. 2017–Sept. 2026)
Source: Bloomberg as of September 30, 2026. Chart shows annualized returns of the Bloomberg U.S. Aggregate Bond Index grouped by Fed policy regime, December 2017–September 2026. Hiking/cutting refers to annualized returns from first through last hike/cut of a cycle. Hold refers to all other periods.
  • U.S. core fixed income came under pressure in Q3, with the Bloomberg U.S. Aggregate Bond Index (the Agg) falling 3.5% as resilient economic data, persistent inflation and high energy prices drove Treasury yields sharply higher.1
  • Recent history underscores the challenge rising rates pose for traditional fixed income. Since late 2017, the Agg has returned −4.1% annualized during Fed hiking cycles, versus 3.3% when the Fed held rates steady and approximately 4.3% during easing cycles.2
  • While the Fed is expected to hold next week, markets are currently pricing in two to three hikes over the next 12 months.1
  • The prospect of further tightening complicates the outlook for core fixed income. Higher yields provide greater income, but continued rate uncertainty leaves the path for total returns less certain.
contributing authors
Christopher Bole
Christopher Bole
Vice President, Financial Writer
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footnotes + disclosures
  1. Bloomberg, based on the Bloomberg U.S. Aggregate Bond Index.
  2. Bloomberg as of September 30, 2026. Chart shows annualized returns of the Bloomberg U.S. Aggregate Bond Index grouped by Fed policy regime, December 2017–September 2026. Hiking/cutting refers to annualized returns from first through last hike/cut of a cycle. Hold refers to all other months.

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