The fixed income landscape has undergone a significant repricing in 2026. James Flintoft, head of investment solutions at AJ Bell, explored how the outbreak of conflict in Iran and the resulting surge in energy prices have forced an upward revision to inflation forecasts, prompted hawkish rhetoric from central banks, and sent gilt yields sharply higher.
This article was written in April 2026 using figures obtained at that time.
For MPS portfolio managers, this environment demands both precision in managing interest rate risk for passive based portfolios and selectivity in how credit exposure is held, though in some respects this repricing also presents an opportunity.
Managing duration
Duration management sits at the heart of fixed income portfolio construction, and in a volatile rate environment, it becomes the primary lever available to managers seeking to limit downside or position for a shift in the rate cycle. Traditional broad-market passive bond funds and ETFs bundle together a wide range of maturities and shift with issuance patterns, making it difficult to express precise views on specific parts of the yield curve.
Maturity bucket ETFs — tracking indices defined by a specific maturity band, such as one-to-three years or three-to-seven years — offer a more surgical approach. Rather than accepting the blended duration of the broader market, a manager can build deliberate positions across discrete segments of the curve, reflecting a genuine view on where value lies and where risk should be avoided. In the current environment, the ability to isolate exposure to the one-to-five-year segment without inadvertently taking on additional duration risk has been particularly valuable.
It is worth acknowledging the more recent emergence of defined-maturity ETFs — instruments that wind up at a fixed future date, blending characteristics of a fund with those of an individual bond. These represent a genuine product innovation and have attracted meaningful inflows. However, for MPS portfolio construction purposes, the flexibility and index transparency of traditional maturity bucket ETFs remains our preferred approach.
Corporate bonds
Whilst maturity bucket ETFs offer an efficient means of managing duration in government bond markets, the corporate bond and high yield universe presents a different set of considerations, and one where the choice between active and passive approaches deserves careful thought at the portfolio construction stage.
For passive MPS allocations, broad investment-grade corporate bond index funds offer cost-efficient, diversified exposure, though it is worth ensuring the index reflects the appropriate duration and credit quality profile, given that market-cap weighted indices can skew towards the most indebted issuers.
Active management can make a stronger case here and in the less efficiently priced corners of the credit market, most notably high yield, where variability in issuer quality and the importance of downside avoidance create conditions more conducive to alpha generation. Whether through a fully active strategy or a factor-based approach screening for quality or shorter duration, the principle is the same: in high yield, what you own matters as much as how much you own.
Gilts in focus
The sharp rise in gilt yields during the first quarter brings with it greater attention on the opportunity that higher yields represent. Those deploying fresh capital can now lock in yields that reflect higher interest rate expectations, and with central banks signalling rate rises, the case for moving from cash and onto the yield curve is increasingly persuasive.
The tax efficiency of gilts adds a further dimension worth highlighting. Many gilts currently trade below par, carrying low coupons set during the era of near-zero interest rates. For investors holding these issues to maturity, the return is weighted towards capital appreciation rather than income and gains on gilts are exempt from capital gains tax. For higher and additional rate taxpayers, this produces a gross equivalent yield that can be substantially more attractive than cash savings taxed at marginal income tax rates.
Constructing a gilt ladder — holding issues maturing at regular intervals — allows this tax efficiency to be deployed in a structured way, whether to meet known expenditure commitments, support a retirement strategy, or anchor a portion of the portfolio in predictable, secure returns. A gilt MPS structure is a particularly neat solution for advisers seeking to deliver this at scale, bringing the ladder approach into a low-cost, managed wrapper that is straightforward to implement and review within an ongoing advice relationship. Crucially, this tax efficiency is not available when investing in gilts via a fund – the account must hold gilts directly.
Outlook
The current environment does not lend itself to a single, high-conviction fixed income view. The inflation trajectory, the pace of central bank tightening, and the duration of geopolitical disruption all remain uncertain. For us, a well-constructed fixed income allocation combines targeted duration management, broad regional diversification, and a considered blend of nominal and real yields.
This feature was part of our 2026 Fixed Income Insights. For deeper analysis on bond markets and rates strategy for advisers, explore IFA Magazine’s latest Fixed Income Insights publication.
About James Flintoft
James joined AJ Bell in January 2023 as a Fund Manager and has over a decade of experience managing multi-asset and equity portfolios. He spent several years as an Investment Associate, managing portfolios and providing research on UK equities, funds and global markets, before going on to serve as Head of Portfolio Management and later Head of Investments for a regional DFM. James is a CFA charterholder and has a degree in Finance & Investment Management
