Fixed income score card

Three quarters into 2026, and the Bloomberg US Aggregate Bond Index is down roughly 2.8% YTD.

That extends what is already the longest drawdown in the index's 50-year history, now 74 months since the August 2020 peak, with a maximum drawdown of -17.2%. You can see that in the ya le below.

For context: the previous record was 16 months (1980-81). We are now more than 4x past that record. Unprecedented doesn't begin to cover it. It does look like we broke the downward trend that started in the 80’s.

Why has 2026 been so difficult?

🔹 The Fed pivoted — the wrong way. After cutting rates into 2025, the Fed hiked on September 16 — its first increase in three years. Sticky inflation forced the move: core PCE climbed from 3.0% in December 2025 to 3.3% by July.

🔹 Long yields surged. The 10-year Treasury touched ~4.94% in September, near the top of its recent range, as markets repriced for a higher-for-longer (or higher-for-a-while-longer) policy path.

🔹 Rate volatility overwhelmed carry. Even with aggregate yields near ~5%, duration losses ate through income — the classic bond math that's punished investors since 2021.

What about Q4?

The path forward hinges on inflation. If Middle East tensions keep oil elevated, another hike is on the table and duration stays dangerous. If inflation moderates, the Fed can step back and the market finally gets the catalyst it's been waiting for.

A couple of final points:

✅ Income is finally the return driver — 5%+ starting yields mean bonds don't need a rally to deliver value

✅ investors are favoring short/intermediate duration and credit selectively (IG corporates, securitized) over long Treasuries. At some point that positioning may revert.

Bonds are supposed to be boring. Six years in, this drawdown has been anything but. The question for Q4 isn't whether the cycle turns — it's whether it turns this year.

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