Rising Bond Yields Restore Fixed Income Market Attractiveness

Rising bond yields have restored the attractiveness of fixed income markets for retail investors following a prolonged period of poor returns. The 10-year U.S. Treasury recently traded above 5%, while the 10-year Canada bond approached 4%, driven by high inflation and concerns over government debt.

Sébastien Mc Mahon, Chief Economist at iA Financial Group, describes the shift as a regime change, noting that interest rates have normalized to levels not seen in 20 to 25 years. This environment makes traditional 60/40 portfolios viable again, as fixed income products—particularly credit ETFs and high-quality corporate bonds in Canada—now offer yields that may surpass stock dividends.

Investment analysts suggest that while equities are currently expensive, bonds are near oversold levels. Vanguard Canada expects the Bank of Canada to raise rates once by the end of 2026 and again in 2027, while projecting one additional hike from the U.S. Federal Reserve by the end of 2026.