The reach for yield is over. The hunt for quality is not

Please note this interview was filmed on Tuesday, 12 May 2026

The more I’ve learned about income investing, the more I’ve discovered that it is about far more than simply buying a few bonds and sticking them in the bottom drawer.

You can do that, of course, but it is the fixed income equivalent of buying a handful of blue-chip equities and forgetting about them. How has that worked out lately with CSL? Or with previously untouchable technology stocks?

Just as it pays in equities to build a diversified portfolio across growth, income, defensive, small-, mid-, and large-cap exposures, the same principle applies to fixed income. The opportunity set extends far beyond traditional government bonds and cash, with active managers able to move across sectors and securities to enhance returns when rates are falling while protecting capital when yields rise.

That’s the goal of the Janus Henderson Tactical Income Fund (also available as an ETF), which can invest across a broad range of fixed income opportunities throughout the cycle, including fixed-rate bonds, floating-rate bonds, government securities, credit and cash.

The good news for investors, according to Janus Henderson’s Head of Australian Fixed Interest, Jay Sivapalan, is that the days of desperately reaching for yield are behind us and the opportunity set has become “a lot more attractive”.

“To put things in context, if we look at the bond market, which globally has been around for over 400 years, bond yields have generally been in that 4-6% range. We know that during the pandemic and just prior to the pandemic, bond yields got down to very close to zero, and in some cases negative.”

“We’re certainly back to much more longer-term averages, but importantly for investors, there’s actually income that investors can live off and eat again.”

In the interview above, Sivapalan explains why parts of the credit market may not be adequately compensating investors for risk, how the Tactical Income Fund dynamically shifts between duration and credit exposures, why AI-linked infrastructure is creating compelling bond opportunities, where Janus Henderson is finding attractive risk-adjusted returns globally, and the scenarios that could derail income markets over the next 12-18 months.

INTEVIEW SUMMARY

Income is back, but selectivity matters

Sivapalan believes fixed income has re-entered a far healthier environment for investors after years of ultra-low yields distorted markets and forced investors to take excessive risk in search of income.

But while higher starting yields are constructive, he warned that not all parts of the market deserve investor capital equally.

“Like all investments, fixed interest also has the good and the bad,” Sivapalan said.

One of the key risks he sees today is that lower-quality credit markets are not sufficiently pricing the possibility of future economic weakness and rising defaults.

“That’s not to suggest that we’re suddenly about to go through an economic downturn, but certainly the pricing of that risk is not there,” he said.

“When we do go through an economic downturn sometime in the future, the defaults will rise and we don’t feel that investors are being compensated enough.”

Rather than stretching for incremental yield, Sivapalan said the focus remains on combining attractive income with resilience.

Building an all-weather fixed income portfolio

The Janus Henderson Tactical Income Fund was designed as what Sivapalan describes as an “all-weather fund” capable of dynamically adjusting across the fixed income universe depending on the market backdrop.

The fund can actively rotate between fixed-rate bonds, floating-rate bonds, government securities, credit and cash depending on where Janus Henderson sees the best opportunities.

“It’s an active investment solution and the idea is to deliver investors a smoother return profile,” Sivapalan said.

At present, the team is leaning into duration exposure, particularly in the four-to-six-year part of the yield curve where yields remain attractive, while pairing that with what he considers relatively lower-risk spread sectors.

“That could include our state government bonds, or higher quality credit, or regulated cashflow utilities and those sort of areas,” he said.

Importantly, Sivapalan stressed that the portfolio weights evolve through time as market conditions and valuations change.

Why AI is creating opportunities in bonds

While artificial intelligence is often framed as an equity story, Sivapalan argued that one of the biggest opportunities for fixed income investors sits further down the value chain.

“What do you need to feed the AI boom? Electricity generation, distribution and transmission,” he said.

That requirement is creating significant funding demand from regulated infrastructure providers and utilities, many of which rely on debt markets to finance new investment.

According to Sivapalan, these businesses often feature relatively defensive cashflow models and offer attractive opportunities for bond investors.

“There’s a lot of well-entrenched organisations in Australia, companies, that are well regulated, that typically run cost recovery models,” he said.

“And so that’s an area where we’re able to cornerstone deals and really extract higher than average returns from a relatively safe segment of the broader bond market.”

Sivapalan added that Janus Henderson has been researching these themes for years and is now moving into execution mode as the AI infrastructure buildout accelerates.

Active duration management can drive returns

Sivapalan also argued that duration is no longer simply a defensive tool, but an increasingly important source of active return generation.

“The good thing though is, unlike when we were at zero, 1% or 2% yields, if your starting point is 5% or 6% yields and you’re getting that level of income, you can actually have rising yields and still have positive returns out of the asset class,” he said.

He noted that the team has actively increased duration several times over the past year in response to changing market conditions, helping boost returns above benchmark income levels.

At the same time, the portfolio uses a range of risk-management tools to protect capital during periods of market stress, including credit default swap protection.

Sivapalan pointed to episodes including the pandemic, the Global Financial Crisis, “Liberation Day”, and the recent Iran conflict as examples where these protections helped preserve capital.

The biggest risks facing income markets

Despite the improved backdrop for income investing, Sivapalan remains conscious of several key risks that could disrupt markets over the next year.

“There are two areas perhaps that are worth thinking about,” he said.

“One is a policy error and that can come from the government sector or from the central banks.”

“The second one, which we can never predict, is a left field shock and that could come on the energy side or on the geopolitical realignment that we’ve got going on.”

For that reason, Sivapalan believes flexibility, diversification and active risk management remain essential ingredients in fixed income portfolios, even in a far more attractive yield environment.

ETF

Janus Henderson Tactical Income Active ETF (TACT)

Australian Fixed Income

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Managed Fund

Janus Henderson Tactical Income Fund

Australian Fixed Income

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