BlackRock’s Russ Brownback believes fixed income investors are heading into the best environment he’s ever seen in his nearly 40 years in the business. Brownback, the firm’s deputy chief investment officer for global fixed income, said the economy will benefit from an artificial intelligence-driven productivity boom, yields remain at attractive levels and changes in bond markets are creating opportunities to pick winners. “A few years ago it was exciting to get back to a real income regime, but now with all the diversification underneath it all, it’s the best environment I can remember,” he said. Although overall credit quality is good, some crises are increasing, he explained. “By the time the third-quarter results were released, we were starting to see some concerns about defaults and credit quality,” Brownback said. “We think this trend will continue to grow until monetary policy actually becomes more accommodative rather than restrictive.” Earlier this month, the Fed cut interest rates by a quarter of a point, the third time since September, but signaled the pace would slow going forward. Today’s interest rate futures indicate that traders are pricing in a high likelihood that interest rates will be left unchanged at the Fed’s January and March meetings, according to the CME FedWatch tool. Therefore, Mr. Brownback not only takes advantage of attractive income opportunities, but also strategically trades diversification opportunities to add additional value. Finding winners Going into 2026, Brownback is bullish on agency mortgage-backed securities (MBS), which are “very, very cheap” compared to investment-grade corporate bonds. “Given the high liquidity of the sector and the very high quality direction of the agency mortgage-backed securities market, that’s where we like our high quality credit,” he said. AGZ YTD Mountain iShares Agency Bond ETF Year-to-date Brownback also sees opportunities for “credit picks” in securitized credit, including non-agency MBS, commercial mortgages, loan-backed securities, and asset-backed securities. BlackRock has significant exposure across markets, he said. For example, the single-family home market for non-agency MBS may be different in the Southwest and Midwest, he said. “Once you decide which region, which (mortgage-paying assets) you want to put in, what part of the cap stack you want to put it in, you have a huge opportunity to make security selections and credit selections all the way down to the CUSIP level,” Brownback said, referring to the numbers that identify individual bonds and securities. Kellogg School of Management MBAs also seek diversification in high-yield markets in the United States, Asia, and Europe. “All of this, in a diversified way, once again contributes to what we believe will be equity-like returns for a very high-quality fixed income portfolio for the second year in a row,” Brownback said.
