A different starting point for fixed income

Rose Devli is a Vice-President & Portfolio Manager with the Core Fixed Income team at Scotia Global Asset Management. Click here to learn more about her investment solutions.

Key takeaways:

• Today's bond market operates in a very different environment to the one that drove the 2022 selloff.
• Higher yields have created a stronger foundation for fixed income returns.
• Active management can help investors navigate changing market conditions and evolving risks.

Some market events leave a lasting mark on investor thinking. The challenge is knowing when it's time to look forward rather than back.

Gold's strong performance in recent years has certainly captured investors' For fixed income investors, few periods have been as consequential as 2022. One of the fastest interest-rate hiking cycles in decades challenged long-held assumptions about bonds' role as a source of stability and diversification, prompting many investors to reassess the place of fixed income within a portfolio.

Yet, in many respects, 2022 was less a permanent impairment of the asset class than a rare repricing event. Low starting yields collided with aggressive monetary tightening, creating a near-perfect storm for bond investors. 

The fixed income landscape has since evolved, and the conditions that drove the selloff in 2022 bear little resemblance to those that investors face today. Yields are higher, economic conditions have shifted and volatility has returned to bond markets. As a result, investors and advisors may benefit from evaluating fixed income through the lens of today's market realities rather than the extraordinary circumstances of 2022.

The more important question is no longer what happened in 2022. It is what today's environment means for fixed income going forward.

The bond market entered 2022 with yields near historic lows and little margin for error. As inflation accelerated, central banks responded with aggressive rate increases, causing bond prices to fall sharply.

Rose Devli, Vice President & Portfolio Manager at Dynamic and Scotia Global Asset Management, describes that period as "a three in 100 event" for fixed income.

"It was a recipe for disaster," says Devli. "Yields started at historic lows—the 10-year U.S. Treasury was yielding roughly 50 basis points—just as inflation surged. Coming out of the pandemic, governments had injected unprecedented amounts of money into the economy. In the U.S. alone, fiscal support amounted to about 26% of GDP. When governments increase spending and liquidity on that scale, it can lead to persistent inflation."

Because of this perfect storm of occurrences, Devli believes that the selloff reflected a repricing rather than a permanent impairment of fixed income. Low starting yields left investors with little cushion as central banks moved aggressively to contain inflation.

In contrast, the starting point today looks very different. Yields are significantly higher than they were entering 2022 and sit closer to levels seen before the 2009 Global Financial Crisis than the low-rate environment that followed.

That distinction matters because yield remains a key driver of fixed income returns. Higher starting yields can generate more income and provide a larger cushion against future interest-rate movements, meaning investors now have fixed income “insurance” that pays them to own it.

Uncertainty does remain, with inflation pressures, tariffs, geopolitical tensions and energy-related shocks continuing to influence market expectations. Investors, however, should distinguish between short-term disruptions and longer-term trends. A 10-year bond reflects a decade of expected returns, not simply the latest headline or economic data point.

And focusing exclusively on the losses of 2022 risks overlooking how much the fixed income landscape has changed. Higher yields have improved the income available to investors, providing greater protection should yields move higher. This combination of factors has altered the starting conditions that contributed to the selloff.

Fixed income remains a complex and evolving asset class. While bonds are often viewed as a relatively static allocation, returns are influenced by a range of factors, including duration, yield-curve positioning and credit exposure. Each can have a meaningful impact on outcomes.

Market conditions can shift quickly. Duration, yield-curve exposure and credit allocations that appear appropriate at one stage of the cycle may require adjustment as economic conditions and market expectations evolve. As a result, understanding the drivers of fixed income returns has become increasingly important for investors.

That flexibility may be especially valuable in an environment where inflation remains uncertain and central banks face competing pressures. Investors can no longer assume fixed income returns will be driven primarily by falling interest rates and capital appreciation. Portfolio construction, risk management and positioning play a larger role in shaping outcomes.

A deeper understanding of fixed income can also help investors better evaluate what they own. Not all income-generating investments provide the same portfolio characteristics. Short-term credit, dividend-paying stocks and GICs may each serve a purpose, but they should not automatically be viewed as substitutes for a diversified fixed income allocation.

"A lot of investors think that they're getting adequate fixed income exposure," says Devli. "But they need to understand that fixed income markets are always changing, always morphing. That's why active management is so imperative at this point in the economic cycle. You can't just buy and hold in fixed income. You have to be active."

The broader lesson is not that fixed income has changed its role within a portfolio. Rather, the environment around it has changed. Higher yields have increased the income available to investors, while greater volatility has increased the importance of active decision-making.

For advisors and investors alike, moving beyond 2022 means recognizing the difference between a rare repricing event and the market that exists today. Fixed income is operating from a different starting point—one characterized by higher yields, and a broader range of opportunities and risks. Understanding that distinction may help investors re-evaluate how fixed income fits within a diversified portfolio.

This article is based off an interview with Rose Devli conducted in May 2026.