Here’s what’s one of the most attractive income opportunities, says Vanguard. Here’s what the firm likes

According to Vanguard, bond investors still have one of the most attractive entry points in decades for generating portfolio income.

While not at their highest levels of the year, yields remain high in the government bond and credit markets. The 10-year Treasury yield is currently around 4.4%, and the Vanguard Total Bond Market ETF (BND), which provides broad exposure to the U.S. taxable investment market, has a 30-day yield of 4.39% on the SEC.

Fixed income has also been a stabilizer of portfolio performance this year thanks to its higher initial yield, the firm said in a recently released third-quarter forecast.

“Higher yields have helped provide a buffer against recent market volatility, keeping bond yields stable amid greater volatility in stocks,” the report said.

Finding an opportunity

Vanguard sees opportunities across sectors.

Within government securities, the firm expects a range-bound environment and prefers to hold duration exposure at the bottom of the yield curve.

When it comes to credit, investment-grade corporate bonds and other high-quality credit offer the most attractive risk-adjusted yields, said Colin Cunniffe, head of global taxable credit research at Vanguard.

“Investment-grade corporations remain fundamentally sound, with resilient margins, flexible supply chains, and steady productivity gains, helping them weather the recent tariff noise,” she wrote in an email.

The Vanguard Total Corporate Bond ETF (VTC) currently has a 30-day SEC yield of 5.09% and an expense ratio of 0.03%.

Within the segment, Cuniff favors short-term financial instruments because of their relative value. Banks are also fundamentally sound, as they are well-capitalized with conservative liquidity needs, she added. Additionally, Vanguard is overweight BBB-rated industrial issuers.

Cunniffe’s team also favors investment-grade utilities, thanks to their stable cash flow profiles and strong demand for electricity driven by the rise of artificial intelligence.

“This demand has led to increased capital investment, which has led to more bond issuances and, in turn, more attractive valuations,” she said.

Outside of corporate bonds, Vanguard sees opportunities right now in mortgage-backed securities. While bond market spreads have fallen to near their lowest levels in decades, MBS spreads are higher than historical levels — making them priced closer to fair value.

“There are several areas of the market that offer attractive return potential with more limited prepayment risk, including agency-backed collateralized mortgage obligations (CMOs), agency-backed designated pools, agency-backed commercial mortgage securities, and non-agency, yet high-quality AAA-rated residential mortgage-backed securities (RMBS).

The Vanguard Mortgage-Backed Securities (VMBS) ETF has a 30-day SEC yield of 4.21% and an expense ratio of 0.03%.

Finally, Vanguard is overweight asset-backed securities (ABS), favoring higher-quality issuers and sectors that have proven their performance across multiple economic cycles.

“Structured products, particularly ABS, have lagged behind the spread correction we have seen in corporate bonds following the recent tariff-related volatility.” “This, coupled with continued higher levels of new ABS issuance, has created an attractive relative value opportunity in ABS.”