In this exclusive Q&A interview, 401(k) Specialist Editor-in-Chief Brian Anderson sat down with Jeff Given, Head of developed-market fixed income and co-head of the U.S. core and core-plus fixed income team, to explore trends shaping today’s fixed income markets, the role fixed income plays in 401(k) plans, and how strategies like short duration and active management can help meet participant needs.
Given also offers insights on lessons learned from 2022, evaluating managers, and positioning portfolios in a shifting interest rate environment.
401(k) Specialist: So Jeff, as a well-versed subject matter expert on this topic, what are the main trends currently shaping the fixed income market?
Jeff Given: There’s a couple of big trends that are hitting the market right now. The first is, whether the Fed is going to cut rates or not cut rates over the next year, year plus.
That’s really being driven by inflation and unemployment outlook. Our view is that the Federal Reserve wants to cut rates but needs the data to be able to do it. And as inflation stays elevated, they’re reluctant to cut rates based on what happened in 2021, 2022 and into 2023.
I think that’s one of the big themes that everybody’s been grappling with. The second is valuations on corporate credit. Both investment grade and high yield are near all-time highs. And for a good reason—the fundamentals are very good, but that’s caused a lot of people to become a bit more cautious on the space just because you’re not getting paid for the risk you traditionally get in the high-yield or investment grade bond markets.
401(k) Specialist: Why is fixed income important and a significant component in 401(k) plans?
“As people near retirement, they need more income. And fixed income creates a steady stream of income for participants as they’re getting closer to retirement age.”
Jeff Given
Given: I think there’s two reasons that they’re important and should be a significant component in 401(k) plans. The first is the stability that it brings relative to equities, where, if we do get an economic slump, rates do tend to drop as the Fed cuts rates, and that can help offset equity exposure, so it creates a little bit more of a lower volatility outcome for the 401(k) participant. And the second one’s very simple: It’s income. As people near retirement, they need more income. And fixed income creates a steady stream of income for participants as they’re getting closer to retirement age.
401(k) Specialist: Since Institutional Investors often lead the way in investment trends what fixed income solutions are being used across different plan types from defined contribution to defined benefit and union plans, and what is emerging in the broader institutional landscape?
Given: What we’ve seen in the defined contribution space is a more of a focus on what you call the core plus-type of strategies where they’ll have an allocation to high-yield or outside the U.S., and the reason for that is they don’t want participants having to try to figure out how much high-yield they should have in their portfolio and how much non-U.S. dollar they should have.
So they’re looking for more core plus managers to do that for the participant. And the defined benefit plans—and I think it applies to union plans a bit as well—you’ve seen a mixture. Some want to go core plus where the committees don’t have to make that decision. Others want more core, as they’ve done allocations to private credit, private equity and other alternatives where they get their credit risk there. So they want to have a bit more of a traditional fixed income experience as part of that allocation.
I think that touches a little bit upon what’s happening on a broader basis—you start to see more private credit and private equity-type of investments and less liquid alternatives into these types of plans. And that is likely a trend that may continue.
And what I think needs to happen is people will focus on the liquidity aspect of their overall plan, both in a contribution standpoint and defined benefit where maybe more of a core-like strategy makes sense to provide that liquidity that you don’t necessarily have in private equity or private credit.
401(k) Specialist: Now let’s talk about short duration. What makes your opportunity set so unique?
Given: I think the great thing about short duration strategies is the ability to take a little bit more credit risk with a bit more certainty. So as a bottom-up manager, when you’re looking at one- to two-year securities, unless you default, you’re going to get paid back par and you tend to earn a bit more interest than what you’re going to get in a Treasury or a high-quality portfolio.
“I think the great thing about short duration strategies is the ability to take a little bit more credit risk with a bit more certainty.”
Jeff Given
It’s a little bit different where, in the longer duration strategies, you have a lot more market volatility. On the short end, you have a lot less market volatility. You buy a two-year today, it’s a one-year bond a year from now, and it’s just going to get closer and closer to par as it goes off to maturity. So that can help create a lot more stability.
Now you are giving up something, and that’s locking in rates for a longer period of time. If you buy a strategy that’s seven- to 10-year average life or maturity, you’re locking in those yields for seven to 10 years. In a short duration strategy, you only have that certainty of that income stream for one or two years. It does definitely play a role in client portfolios, but they just need to understand that reinvestment risk aspect of it—especially with rates being a lot higher than we’ve seen in a long time.
401(k) Specialist: With many firms shifting towards passive fixed income investing, why is active management important?
Given: Besides the fact that that’s what I do? (Laughs) Active management in fixed income has shown the ability to outperform passive indices. And there’s one really big reason for that. The indices don’t actually incorporate a lot of the fixed income market. An active manager takes advantage of the full opportunity set of fixed income securities. Indices are rule based and exclude many high quality, liquid bonds.
I’d say the second reason why active management in fixed income is important and why it has the potential to outperform passive management is that the largest weights or holdings within a passive index are typically the companies with the most debt outstanding.
Do you necessarily want to own the companies with the most debt outstanding? Maybe companies with less out debt outstanding have a better prospect going forward, less risk of default. And so you can shape the portfolio to be more diversified, a bit more stable we think over a longer period of time in using an active strategy versus passive.
401(k) Specialist: What lessons can be drawn from the fixed income market in 2022, and should these inform current strategies?
Given: I think there’s one big lesson from 2022 for people have been professional buyers of fixed income as well as participants. That is you always need to have a bit of a forward-looking view when you do an allocation and not rely on where things have been.
“The forward prospects for fixed income have never looked better—or this good—for a long period of time. You’re getting yields of 4%, 4.5%, 5%, or even 5.5% depending on how you structure your portfolio… Now’s the time to consider more fixed income.”
Jeff Given
Heading into 2022, the return prospects for fixed income were dim. Yields had returned to historical lows during the pandemic, with many investments earning only 1% to 2%. Any significant increase in interest rates could have been painful for fixed income investors, as the risks were higher. As the Fed began transitioning from quantitative easing to quantitative tightening and addressing rising inflation, yields spiked. Now that 2022 is behind us, our conversations with advisors and clients focus on the future prospects for fixed income, which haven’t looked this promising for a long time.
Today you’re getting yields of 4%, 4.5%, 5%, or even 5.5% depending on how you structure your portfolio.1 That’s the best it’s been. And so instead of worrying about what happened in 2022, really have a forward-looking view. Rates are very high; you’re getting paid a lot of income. Now’s the time to consider more fixed income, versus you go back to 2020, 2021. Yields were really low. Stability was there, but the forward return prospects weren’t very good.
401(k) Specialist: What factors should advisors consider when evaluating fixed income managers?
Given: I think there’s a few things. One, making sure they understand their approach to the market and how they invest. Two, the consistency of the approach. But what I think is really important is you take a look at: are they making big bets that pay once or twice over the last five to 10 years, and that’s driving their track record? Or are they beating benchmarking peers by a decent amount every single year, but you’re not having a big home run-type of year that can skew your one, three and five years? That consistency of returns I think is really important when evaluating fixed income managers.
401(k) Specialist: In today’s economic climate, why is a bottom-up strategy important in fixed income investing?
Given: We always like to think a bottom-up approach is extremely important, but I would say it’s even more important when you have valuations of corporate credit and high yield as full as they are right now. In this environment you cannot rely on an overweight to broader credit markets to drive return. Because if you get a name wrong, the price is going to go down quite a bit and you just don’t have the opportunity to make it back up, because there aren’t other names trading really wide or undervalued right now.
When valuations are full, the downside in individual names can have a material impact on performance making bottom-up analysis more impactful. When spreads are wider, you can afford to get one or two wrong as the rest are likely to work out, and you ‘ll end up looking good regardless. However, right now, at these tight spread levels, getting one or two wrong could significantly impact your track record and overall return.
401(k) Specialist: Finally, how are inflation and Fed policy shaping fixed income strategy right now and how should 401k investors think about it?
“We believe you need to have a longer-term view and not focus on where short rates are right now. Are rates going to be higher or lower in the next two or three years? That is going to be the biggest driver of your returns.”
Jeff Given
Given: There are a few ways that it’s impacting fixed income portfolios right now. One way it is impacting it, is the shape of the curve. The curve should remain steep and potentially steepen further if short term rates do come down over the next few years. Even if short rates don’t come down, we believe the curve will remain steep due to the recent inflation experience. Investors are going to demand additional income to own longer maturity bonds versus shorter maturity bonds. Another impact is looking at overall duration. You still see a lot of managers stay short duration versus the benchmark. More so than those targeting a longer duration. We believe you need to have a longer-term view and not focus on where short rates are right now. Are rates going to be higher or lower in the next two or three years? That is going to be the biggest driver of your returns. About 90% of your return in fixed income over 5 years is driven by income.2 For example, what 401k investors should think about is will they be happy earning around 5% per year over the next several years. I would argue they will probably be happy to earn this.
Learn more about Manulife John Hancock Investments’ fixed income capabilities.
The opinions expressed are those of the author as of 8/13/25, and are subject to change. No forecasts are guaranteed. This article is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index by John Hancock Investment Management Distributors LLC, John Hancock Investment Managment LLC, and their affiliates.
Investing involves risks, including the potential loss of principal. Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if an issuer is unable or unwilling to make principal or interest payments. Investments in higher-yielding, lower-rated securities include a higher risk of default.
Diversification does not guarantee a profit or eliminate the risk of a loss.
Par refers to the face value or nominal value of a bond, typically $1,000. It is the amount the issuer agrees to repay the bondholder at maturity.
Short duration refers to bonds or bond funds with a relatively short average time until maturity, typically less than three years.
Yield refers to the income return on an investment, typically expressed as an annual percentage.
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