Insights

How fixed income can (still) provide an anchor to windward

A variety of strategies and tactics can help public and Taft-Hartley plans enhance diversification and return in fixed income portfolios.

October 23, 2025

Jacob Brown, CFA

Client Portfolio Manager

The financial markets’ turbulence this year has been well chronicled. (See the State Street Investment Management Insights page for our ongoing thoughts on the matter.) In addition to concerns about ongoing changes in trade policy, immigration rules, and government spending, investors and business leaders are worried about the overall lack of clarity and stability in policy—including difficulty discerning which pronouncements represent genuine intentions versus negotiating tactics.

Both equity and bond markets have been exceptionally volatile:

The S&P 500 nearly entered bear market territory, dropping 19% between February 19 and April 8, as the VIX spiked to levels last seen in the early days of the COVID-19 pandemic. The benchmark equity index subsequently recovered and in July reached a new all-time high.¹
The yield on the 10-year US Treasury note swung from a closing high of 4.62% on February 12 to a low of 3.99% on April 4, then rose back to 4.60% in late May before once again retreating.¹

US Treasuries historically helped stabilize portfolios during periods of turbulent equity markets. Many public and Taft-Hartley pension plans are trying to determine how they can use fixed income to play this role today, when sources of volatility seem to shift daily. Meanwhile, plans are searching for ways to improve their funding ratios without meaningfully increasing the risk in their portfolios. We have several ideas for fixed income strategies and tactics that may help manage risk and improve diversification, and have the potential to generate additional return as well.

Systematic active fixed income

Active management can help enhance a fixed income allocation’s returns without sacrificing the qualities that help it stabilize a broadly diversified portfolio—namely regular income payments and low correlations to other asset classes.

Systematic active fixed income (SAFI) strategies use a quantitative approach that emphasizes specific investment factors. SAFI strategies seek to add a level of excess return similar to that of traditional fundamental active strategies. Because systematic and fundamental strategies derive alpha from different sources, the two approaches’ excess returns can have low correlations to each other, providing the potential to enhance diversification in the overall fixed income allocation (Figure 1).

Figure 1: SAFI has produced low correlations to fundamental active strategies

Adding a systematic approach to an allocation otherwise composed of fundamental strategies can help enhance diversification while maintaining the incremental return offered by active management. What’s more, fees often are lower for systematic active strategies than for fundamental active strategies, helping to reduce cost drag on investors’ portfolios.

Broad exposure to investment-grade debt—public and private

Many core-plus fixed income strategies are pegged to the bond market’s standard benchmark, the Bloomberg US Aggregate Bond Index, with additional out-of-benchmark exposure to higher-yielding, higher-credit-risk public bonds, such as below-investment-grade high yield bonds. In addition, focusing exclusively on public fixed income effectively ignores large swaths of the debt markets. Core-plus strategies that incorporate private credit may provide public and Taft-Hartley plans with higher yields without meaningfully greater credit risk.

Many investors associate private credit with the roughly $2 trillion middle market direct lending market. In fact, the full scope of private credit is much larger, in the realm of $40 trillion. It includes direct lending to large investment-grade companies that are willing to pay somewhat higher interest than on publicly issued debt in exchange for greater speed, certainty, and flexibility in the lending process. The private debt markets also encompass a diverse universe of private, investment-grade, asset-backed securities backed by an enormous range of collateral, from real estate and aviation equipment and machinery to music royalties, consumer receivables, and more. Pairing public debt exposure with high-quality private credit from these sources has the potential to generate significantly higher yield than public-only core-plus strategies without a commensurate boost in credit risk.

This investment thesis is at the foundation of the SPDR SSGA IG Public & Private Credit ETF (PRIV) launched in 2025 through a relationship between State Street Investment Management and Apollo Global Management. PRIV’s combination of actively managed public and private exposures offers access to the full breadth of the investment-grade debt markets, potentially helping public and multiemployer plans meet the need to balance returns and stability.

International opportunities

The United States is the epicenter of today’s turbulence, and shock waves are emanating outward from US markets. The diversification provided by exposure to other bond markets could help mute their impact.

The current trade war represents an escalation of a trend toward deglobalization that picked up steam amid COVID-related supply chain disruptions. Deglobalization has a silver lining for fixed income investors: As countries pull back on foreign relationships to varying degrees, we expect economies to experience divergent growth, inflation, and policy trends. Those differences will affect bond markets, likely leading to a wider range of opportunities for return and diversification. For example, US 10-year Treasury rates’ correlations with UK and German sovereign rates fell immediately following the US presidential election, partially recovered, then plunged again following the announcement of tariff policies in April 2025 (Figure 2).

Figure 2: Correlations between US treasury rates and other sovereign bond rates have fallen

Indexed leveraged loan exposure

Public and Taft-Hartley plans can add another dimension of diversification by allocating to assets with lower interest rate risk than the broad fixed income universe. Leveraged loans—also known as senior loans or bank loans—can play this role.

Leveraged loans have floating rates, resulting in effective durations close to zero and helping provide a degree of diversification in a rising rate environment. In addition, leveraged loans have a historical correlation of just 0.15 to the Bloomberg US Aggregate Bond Index (Figure 3). And loans often are both callable (a feature that caps their upside) and secured (which can reduce losses), contributing to a relatively stable return profile over time.

The loans market has expanded and evolved considerably in recent years. It is now possible to index exposure to leveraged loans, which can help improve the efficiency and liquidity of allocations to this unique asset class.

Figure 3: Leveraged loans have low correlations to other fixed income sectors

Balancing growth and stability is a primary focus for public and Taft-Hartley plans. That balancing act becomes especially challenging amid volatile, fast-shifting market environments. Plans can manage the challenge by capitalizing on the fixed income markets’ breadth and depth, which can provide the diversification and range of opportunities they need to help navigate rough seas.

Please contact your relationship manager to learn more about how you can make the most of your fixed income allocation.

Footnotes

Disclosure

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Important Risk Information

Past performance is not a reliable indicator of future performance.

Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss.

Disclaimer: Apollo is not a sponsor, distributor, promoter, or investment adviser to the Fund. Apollo has entered into a contractual agreement with the Fund whereby it is obligated to provide firm bids on asset-backed and corporate finance instruments sourced by Apollo (each an “AOS Investment”) to the Fund on a daily basis at certain intervals and is required to repurchase AOS Investments that the Fund has purchased at the firm bid price offered by Apollo, subject to, but not limited to, contractual levels designed to cover the estimated seven-day stress redemption rate as of the date hereof. The sale of AOS Investments to Apollo is not exclusive and the Fund may seek to sell AOS Investments to other counterparties.

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The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not consider any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

The whole or any part of this work may not be reproduced, copied, or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

The views expressed are the views of the FICC team only through August 18, 2025, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

International Government bonds and corporate bonds generally have more moderate short term price fluctuations than stocks but provide lower potential long-term returns.

Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.

Market Risk: The Fund's investments are subject to changes in general economic conditions, general market fluctuations and the risks inherent in investing in markets. Investment markets can be volatile, and prices of investments can change substantially due to various factors including, but not limited to, economic growth or recession, changes in interest rates, inflation, changes in the actual or perceived creditworthiness of issuers, and general market liquidity

ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.

The Fund is actively managed. The Adviser’s judgments about the attractiveness, relative value, or potential appreciation of a particular sector, security, commodity or investment strategy may prove to be incorrect, and may cause the Fund to incur losses. There can be no assurance that the Adviser’s investment techniques and decisions will produce the desired results.

Debt Securities: The values of debt securities may increase or decrease as a result of the following: market fluctuations, changes in interest rates, actual or perceived inability or unwillingness of issuers, guarantors or liquidity providers to make scheduled principal or interest payments or illiquidity in debt securities markets; the risk of low rates of return due to reinvestment of securities during periods of falling interest rates or repayment by issuers with higher coupon or interest rates; and/or the risk of low income due to falling interest rates.

Investing in high yield fixed income securities, otherwise known as “junk bonds”, is considered speculative and involves greater risk of loss of principal and interest than investing in investment grade fixed income securities. These Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.

Privately issued securities are securities that have not been registered under the Securities Act and as a result are subject to legal restrictions on resale. Privately-issued securities are not traded on established markets and may be illiquid, difficult to value and subject to wide fluctuations in value. Limitations on the resale of these securities may have an adverse effect on their marketability, and may prevent the Fund from disposing of them promptly at reasonable prices. Private credit can range in credit quality depending on a variety of factors, including total leverage, amount of leverage senior to the security in question, variability in the issuer’s cash flows, the size of the issuer, the quality of assets securing debt and the degree to which such assets cover the subject company’s debt obligations. In addition, there can be no assurance that the Adviser will be able to secure all of the investment opportunities that it identifies for the Fund, or that the size of an investment opportunity available to the Fund will be as large as the Adviser would desire, on account of general economic conditions, specific market developments, or other circumstances outside of the Adviser’s control.

Liquidity Risk: Lack of a ready market, stressed market conditions, restrictions on resale, or certain market environments may limit the ability of the Fund to sell an investment at an advantageous time or price or at all. Illiquid investments may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value. If the liquidity of the Fund’s holdings deteriorates, it may lead to differences between the market price of Fund Shares and the net asset value of Fund Shares, and could result in the Fund Shares being less liquid. Illiquidity of the Fund’s holdings may also limit the ability of the Fund to obtain cash to meet redemptions on a timely basis. In addition, the Fund, due to limitations on investments in any illiquid investments and/or the difficulty in purchasing and selling such investments, may be unable to achieve its desired level of exposure to a certain market or sector. Further, if counterparties are unwilling to purchase AOS Investments, AOS Investments that

Counterparty Risk: The Fund will be subject to credit risk with respect to the counterparties with which the Fund enters into derivatives contracts, repurchase agreements, reverse repurchase agreements, and other transactions. If a counterparty fails to meet its contractual obligations, the Fund may be unable to terminate or realize any gain on the investment or transaction, or to recover collateral posted to the counterparty, resulting in a loss to the Fund. If the Fund holds collateral posted by its counterparty, it may be delayed or prevented from realizing on the collateral in the event of a bankruptcy or insolvency proceeding relating to the counterparty.

Valuation Risk: Some portfolio holdings, potentially a large portion of the Fund’s investment portfolio, may be valued on the basis of factors other than market quotations. This may occur more often in times of market turmoil or reduced liquidity. There are multiple methods that can be used to value a portfolio holding when market quotations are not readily available. The value established for any portfolio holding at a point in time might differ from what would be produced using a different methodology or if it had been priced using market quotations. Portfolio holdings that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation in their valuations from one day to the next than if market quotations were used. In addition, there is no assurance that the Fund could sell or close out a portfolio position for the value established for it at any time, and it is possible that the Fund would incur a loss because a portfolio position is sold or closed o

The Fund may hold securities that have not been registered for sale to the public under the U.S. federal securities laws. There can be no assurance that a trading market will exist at any time for any particular restricted security. Limitations on the resale of these securities may have an adverse effect on their marketability, and may prevent the Fund from disposing of them promptly at reasonable prices. The Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays in effecting the registration. Also, restricted securities may be difficult to value because market quotations may not be readily available, and the securities may have significant volatility.

Non-diversified fund may invest in a relatively small number of issuers. The value of shares of non-diversified funds may be more volatile than the values of shares of more diversified funds.

SAFI Disclosures

Barclays Bank PLC has licensed certain systematic strategy indices to State Street Global Advisors that incorporate quantitative signals developed by Barclays’ Quantitative Portfolio Strategy (QPS) Research team.

Neither Barclays Bank PLC (“BB PLC”) nor any of its affiliates (collectively “Barclays”) is the issuer or producer of the products referenced herein and Barclays has no responsibilities, obligations or duties to investors in such products. The Barclays Indices referenced herein (collectively, the “Indices”), together with any Barclays indices that are components of such Indices, are trademarks owned by Barclays and, together with any component indices and index data, are licensed for use by State Street Global Advisors as the producer of the products referenced herein (the “Product Provider”). The Indices are used by the Product Provider in connection with the management of the products referenced herein, but the Indices are not used by the Product Provider as the benchmark for such products, including as defined under Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds.

Barclays’ only relationship with the Product Provider in respect of the Indices is the licensing of the Indices, which are administered, compiled and published by BB PLC in its role as the index sponsor (the “Index Sponsor”) without regard to the Product Provider or the products referenced herein or investors in such products. Additionally, State Street Global Advisors as Product Provider may for itself execute transaction(s) with Barclays in or relating to the Indices in connection with such products. Investors acquire such products from the Product Provider and investors neither acquire any interest in the Indices nor enter into any relationship of any kind whatsoever with Barclays upon making an investment in such products. The products referenced herein are not sponsored, endorsed, sold or promoted by Barclays and Barclays makes no representation regarding the advisability of such products or use of the Indices or any data included therein. Barclays shall not be liable in any way to the Product Provider, investors or to other third parties in respect of the use or accuracy of the Indices or any data included therein.

Barclays has engaged Bloomberg Index Services Limited as the official index calculation and maintenance agent of the Indices, which are owned and administered by Barclays. Bloomberg Index Services Limited does not guarantee the timeliness, accurateness, or completeness of the calculations of the Indices or any data or information relating to the Indices. Bloomberg Index Services Limited makes no warranty, express or implied, as to the Indices or any data or values relating thereto or results to be obtained therefrom, and expressly disclaims all warranties of merchantability and fitness for a particular purpose with respect thereto. To the maximum extent allowed by law, Bloomberg Index Services Limited, its affiliates, and all of their respective partners, employees, subcontractors, agents, suppliers and vendors (collectively, the ‘protected parties’) shall have no liability or responsibility, contingent or otherwise, for any injury or damages, whether caused by the negligence of a protected party or otherwise, arising in connection with the calculation of the Indices or any data or values included therein or in connection therewith and shall not be liable for any lost profits, losses, punitive, incidental or consequential damages.

The S&P 500® Index is a product of S&P Dow Jones Indices LLC or its affiliates (“S&P DJI”) and have been licensed for use by State Street Global Advisors. S&P® , SPDR® , S&P 500® ,US 500 and the 500 are trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and has been licensed for use by S&P Dow Jones Indices; and these trademarks have been licensed for use by S&P DJI and sublicensed for certain purposes by State Street Global Advisors. The fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of these indices.

Distributor State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SPDR ETFs.

Before investing, consider the funds’ investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 1-866-787-2257 or visit ssga.com. Read it carefully.

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