Navigating Fixed Income Amid Heightened Macro Volatility

Global markets seem to be entering a more fragile phase as multiple macro forces converge. Rising oil prices, persistent inflation pressures, and a stronger U.S. dollar are complicating the outlook for interest rates, while uncertainty around AI-driven growth and geopolitical tensions adds to market volatility. At the same time, concerns are emerging around potential stress in credit markets, raising the risk that weakness in one segment could spill into others.

For fixed income investors, we see the environment is increasingly defined by rate uncertainty, inflation risk, and the possibility of widening credit spreads, creating a backdrop where traditional “set-it-and-forget-it” bond strategies may face renewed challenges.

Markets Are Feeling the Pressure

Our view is that markets are feeling increasingly fragile, in part because multiple macro variables are moving simultaneously—and often in the same direction—forcing rapid repricing of risk across asset classes.

A snapshot of the crosscurrents rattling markets last week:

• Energy pressure has re-emerged: Brent crude was back above $100/bbl, trading at $101.77 (March 24, 2026), as conflict risk and supply disruption concerns intensified.
• Inflation expectations remain sensitive: higher oil prices and supply-chain disruption risk can keep inflation concerns elevated, complicating the rates outlook even if inflation is not accelerating uniformly across the economy一a risk the Fed flagged last week in Chair Powell’s March 18, 2026 press conference.
• The dollar continues to hold relatively firm: the dollar index (DXY) has hovered above 99 (Mar 24, 2026), amid cautious risk sentiment and shifting policy expectations.

The impact is also visible across key market indicators:

• Equity volatility: The CBOE Volatility Index (VIX) continues to trend up, closing at 26.15 (March 23, 2026).
• Rate volatility: The MOVE Index remains elevated at 98.15, as of the March 23, 2026 close, reflecting continued sensitivity in Treasury rate expectations.
• 10-year Treasury yield: The benchmark 10-year yield recently climbed to around ~4.38% (March 24, 2026), reflecting ongoing repricing tied to inflation, heavier issuance, and Federal Reserve expectations.

And finally, credit markets were sending early signals of their own:

• Investment-grade spreads: ~0.88% (88 bps) on March 23, 2026.
• High yield spreads: ~3.19% (319 bps) on March 23, 2026.
• CCC & below spreads: ~9.75% (975 bps) on March 23, 2026一where stress often shows up first.

Why This Matters for Fixed Income

Fixed income allocations typically serve three core functions in a portfolio: income generation, capital preservation, and equity risk diversification. Each of those outcomes, however, depends on the stability of the underlying forces that drive bond market behavior.

When the Drivers Move Faster Than Expected

The primary drivers, interest rates, inflation expectations, and credit conditions, are perennially in motion. What we believe distinguishes the current environment is the pace of repricing.

Importantly, starting yields across fixed income are structurally higher than they were a decade ago, which gives even passive core allocations more income cushion than they had in the ultra-low-rate era. That helps. But it does not eliminate interest-rate sensitivity. With rate volatility still elevated, price adjustments that might historically have unfolded over a longer horizon can still compress, producing larger and faster moves across bond sectors.

For portfolios carrying static duration, that dynamic can become a meaningful swing factor—one that’s easy to underestimate when volatility measures such as the MOVE index are running hot.

The Effect of Interconnected Forces

Compounding this is the interconnected nature of these drivers. Traditional core bond allocations may also feel less stable when inflation shocks enter the picture—disrupting the assumption that bonds reliably offset equity risk precisely when investors need them to.

In periods of simultaneous repricing, the interaction between rates, inflation expectations, and credit spreads can exert more influence on fixed income performance than any individual factor in isolation—making outcomes more difficult to anticipate and manage.

Credit: The Next Transmission Mechanism

And if volatility persists, credit may become the next transmission mechanism. Spread widening, particularly in lower-rated segments, can amplify losses in bond portfolios that appear conservative on paper, serving as a reminder that credit risk doesn’t always announce itself in advance.

The Challenge for Static Allocations

For portfolios running static, “set it and forget it” fixed income allocations, this dynamic presents a meaningful challenge. The conditions that once rewarded a largely passive approach to bonds appear to have shifted, and that shift has implications for how fixed income risk should be evaluated and managed going forward.

An Adaptive Approach

In an environment like this, an adaptive approach to fixed income may be worth considering. Hilton’s Tactical Income Strategy (Tactical Income or TI) is designed with that in mind, seeking capital preservation with an emphasis on income generation as a key component of competitive total returns.

Rather than making a single interest-rate bet, Tactical Income’s goal is to handle changing conditions, with the flexibility to navigate shifting rate environments, inflation uncertainty, and evolving credit dynamics without being anchored to a static positioning.

How Tactical Income Can Be Used

Tactical Income is not a one-size-fits-all solution, but we think it is a versatile one. Depending on portfolio construction needs, it can serve several distinct roles:

As a bond portfolio complement. For investors with existing fixed income exposure, Tactical Income can help diversify sources of income and reduce reliance on any single rate outcome—a meaningful consideration when rate volatility is elevated.

As an equity portfolio complement. For equity-heavy portfolios seeking a counterbalance, Tactical Income aims to reduce overall volatility while still participating in return opportunities, without sacrificing the income component that core bonds traditionally provide.

As a standalone income-oriented sleeve. For investors prioritizing risk minimization and yield, Tactical Income can function as a dedicated allocation focused on capital preservation and consistent income generation.

Navigating Fixed Income in a Volatile Environment

When oil prices, inflation expectations, the dollar, and interest rates move in the same direction simultaneously, fixed income outcomes can become harder to anticipate. The interplay between these forces, rather than any single variable, is often what makes environments like this one particularly difficult for traditional bond allocations to navigate.

Understanding how these dynamics affect portfolio behavior is a useful starting point. From there, evaluating whether a more tactical, flexible approach to fixed income aligns with your income and risk management objectives may be a worthwhile exercise.

To learn more about how a tactical approach to fixed income is designed to function across changing market conditions, explore Tactical Income or connect with the Hilton team to discuss how it might apply to your fixed income thinking.

Important Disclosures:

Hilton Capital Management, LLC (“Hilton”) is a Registered Investment Advisor with the US Securities Exchange Commission. The firm only transacts business in states where it is properly notice-filed or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

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