Why public fixed income may be better positioned than many investors think

It is easy to look at 2026 and conclude that markets should be far more unsettled than they are. War in the Middle East, central bank uncertainty, inflation risks and ongoing political volatility have all created a steady stream of reasons to be nervous.

Manusha Samaraweera’s argument is that investors should be careful not to confuse noise with deterioration in fundamentals. In his view, markets have spent the past few years doing a reasonably good job of looking through shocks, and that is not necessarily complacency. It may simply reflect the fact that the underlying growth and credit picture is stronger than many assume.

That is an important distinction for advisers, especially in fixed income, where many investors still approach public markets as if they are defined mainly by rate risk and central bank anxiety.

Samaraweera’s case is broader than that. He argues that public market credit remains one of the more useful ways to stay invested, earn a reasonable yield and preserve a degree of defensiveness, without becoming overly hostage to every macro headline.

Markets may be seeing something more constructive

Samaraweera’s first key point is that the growth backdrop today is more balanced and resilient than it was 18 months ago. Back then, the US was carrying much of the global growth burden, with only limited support from emerging markets. Today, he says, the picture is more encouraging across a wider range of regions. Europe is seeing meaningful infrastructure and defence spending, while even China, despite its structural issues, is proving more resilient than many expected.

His example on China was striking. Trade with the US fell sharply, yet China still grew total trade and recorded a historically large surplus. That does not mean China’s challenges have disappeared, but it does support his broader point that the global economy has shown a greater capacity to absorb shocks than many investors give it credit for.

If markets are holding up in the face of recurring geopolitical stress, perhaps that says less about denial and more about the fact that growth is still broadly functioning.

The second pillar of this optimism is credit fundamentals themselves. Samaraweera argues that corporate leverage across much of the system has actually improved materially since the global financial crisis.

In other words, many businesses are entering this period with healthier balance sheets than investors often assume. When you combine a still-decent growth environment with lower corporate leverage, the result is a system with less embedded fragility than the headlines imply.

Government debt is now a more important source of risk

Where Samaraweera does see a meaningful shift is in the nature of developed market risk. Since the GFC, household, corporate and even some emerging market debt burdens have become more manageable. Developed market governments, however, have moved the other way. That has altered the way advisers need to think about fixed income defensiveness.

His point is not that government bonds no longer matter. They still have an important role as portfolio ballast. But the old assumption that developed markets are always the primary source of stability is becoming harder to sustain. Policy instability in the US, fiscal concerns elsewhere and shifting debt dynamics all mean sovereign markets can introduce volatility in ways that would once have seemed less likely.

For advisers, that argues for a broader and more diversified approach to fixed income. Rather than relying too heavily on one traditional defensive bucket, Samaraweera suggests investors should think about building portfolios that spread risk across several parts of public market credit and rates.

In that sense, the opportunity today lies not only in higher yields, but in the ability to achieve them without the same concentration that investors needed when rates were pinned near zero.

“Don’t be too defensive, because being too defensive can actually be worse than being part of a sell-off.”

High yield is not the same asset class it was in 2008

One of the most practical parts of Samaraweera’s remarks was his defence of high yield. For many investors, high yield still carries the reputational baggage of the GFC, when it behaved almost like leveraged equity in a severe drawdown. His argument is that this framing is outdated.

The asset class has changed materially over the past 15 years, and today’s high yield market is of better quality than many investors realise.

He points in particular to the shrinking share of the weakest, triple-C part of the market. That matters because it changes how high yield behaves in stress events. Recent sell-offs have shown that its sensitivity to equity drawdowns is much lower than it was during the financial crisis. That does not make it risk free, but it does make it more structurally supported than the label alone might suggest.

This is a useful reminder for advisers constructing income portfolios. Public market credit should not be treated as one monolithic block. Different parts of the market now offer quite different combinations of income, quality and downside behaviour, and some sectors that still appear risky by reputation may have become more resilient in practice.

AI is creating opportunities in fixed income too

Samaraweera also makes a timely point about AI, namely that it is not only an equity or private markets story. Public fixed income is increasingly exposed to the AI buildout as well, and in ways that can be attractive for income investors. Large hyperscalers such as Amazon, Google and Oracle are issuing debt in size, while adjacent sectors such as healthcare and pharmaceuticals are also benefiting from AI-led change.

He notes that new fixed income opportunities are emerging through digital infrastructure‑backed securities, where income streams link to assets such as data centres and fibre networks. These structures are still developing and require careful analysis. But they reinforce his point that public market fixed income is not static or outdated. It is evolving alongside major structural themes.

Ultimately, Samaraweera’s core message is straightforward. Public fixed income today offers more income, more choice and more diversification potential than it did in the low-rate era. The key is to use that flexibility well.

Rather than concentrating heavily into one or two yield sectors, investors can now build more balanced portfolios across investment grade, high yield, emerging markets and securitised debt, while still targeting attractive income. In a market still dominated by macro noise, that may be one of the more sensible ways to stay invested without becoming overexposed.