Beyond benchmarks: why flexible bond strategies are gaining ground | Partner Content

Many investors, who previously relied on relatively stable forecasts for growth, inflation and central bank responses, now face a web of conflicting signals: economic slowdown in some regions, soaring energy prices and mounting fiscal pressures in major economies. This interplay of factors makes predicting the future path of interest rates and bond markets considerably more difficult, increasing the risks for both portfolio decisions and policy choices.

In the prevailing market dynamics, flexible and selective investment approaches, such as absolute return bonds, have become more relevant.

Unlike traditional bond funds, which measure success against a benchmark index, absolute return bond strategies actively allocate across the fixed income spectrum, focusing on capital preservation and showing lower correlation to standard bond indices. By managing duration, credit selection, and relative-value trades, they aim to improve the risk-return profile across various market conditions.

Why unconstrained bond strategies now

Unconstrained bond strategies dynamically allocate across regions, sectors, maturities and currencies. This allows managers to position portfolios to reflect short-, medium- and long-term market views. Freed from index bias, they can search the entire fixed income universe for value and move quickly to seize opportunities or sidestep adverse moves — such as rising rates or widening corporate spreads.

For investors, the appeal lies in diversification and resilience. Global, unconstrained strategies generally have low correlation with traditional bond strategies, providing meaningful diversification within fixed income and across wider portfolios.

By creating multiple income streams and actively managing duration, credit and concentration risk, absolute return strategies seek to limit drawdowns and generate smoother performance through market cycles.

In short, unconstrained strategies trade benchmark constraints for flexibility — seeking steadier returns, capital preservation, better downside protection and true diversification in volatile markets.

Managing rate risk and practical positioning

As unconstrained managers, we usually start with a neutral-duration base and then strategically adjust rate exposure — using long/short positions and derivatives — to focus on specific parts of the curve and reduce volatility, rather than following benchmark bias.

In recent months, for example, we have added duration, narrowing over-discounted assets, and are positioned for yield-curve steepening ahead of anticipated Fed easing.

In credit, discipline prevails: capital is allocated into widening spreads only when the fundamentals and compensation are compelling.

Accessing overlooked income streams

A global, flexible mandate enables us to utilise assets that mainstream strategies often overlook.

US agency mortgage-backed securities (MBS), for example, present attractive yields, low credit risk, and deep liquidity, while delivering returns that are less correlated with corporate credit.

In recent years, US MBS have frequently yielded more than US investment-grade corporates for similar credit risk — an asymmetry that unconstrained teams can capitalise on.

A global edge

Executing an absolute return mandate requires extensive sector knowledge and flexible macro analysis. Effective strategies combine bottom-up security selection with top-down risk management.

Dedicated regional and sector specialists, integrated research and strong risk models enable managers to act quickly — shifting to defensive positions when conditions deteriorate and reallocating to areas of opportunity when spreads or policy expectations shift.

A different kind of certainty

Rises in inflation and interest rates in recent years have caused significant economic uncertainty, further heightened by geopolitical turmoil and tensions in international trade.

As we enter the second quarter of 2026, there is little indication that this volatility will diminish. The certainties that previously defined fixed income investment, such as the negative correlation between equities and bonds, are increasingly being questioned. Investors will need to re-examine the robustness of their fixed income allocation.

Absolute return bond strategies provide a flexible, risk-conscious approach that appears well-suited to current and future market conditions. The added diversification and resilience they offer can play a vital role in investors’ fixed income portfolios.

“As we enter the second quarter of 2026, there is little indication that this volatility will diminish. The certainties that previously defined fixed income investment, such as the negative correlation between equities and bonds, are increasingly being questioned. Investors will need to re-examine the robustness of their fixed income allocation.” – Vicky Browne, Investment Specialist in Global Aggregate and Absolute Return at BNP Paribas Asset Management

To learn how BNP Paribas Asset Management’s Absolute Return Bond strategy navigates uncertainty with flexibility, visit our website:

_{Source: BNP Paribas Asset Management, as of end March 2026. No assurance can be given that any forecast, target or opinion will materialise.}

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Disclaimer

_{This advertisement has not been reviewed by the Monetary Authority of Singapore and the Hong Kong Securities and Futures Commission. It is produced for information purposes only and does not constitute 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Investments involve risks. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial investment. Past performance is not indicative of current or future performance. Investors should read the offering document for further details including the risk factors and should seek advice from a financial advisor before investing. This material is issued and has been prepared by BNP PARIBAS ASSET MANAGEMENT Singapore Limited, with its registered office at 20 Collyer Quay, #01-01, 20 Collyer Quay, Singapore 049319, Company Registration No. 199308471D and BNP PARIBAS ASSET MANAGEMENT Asia Limited, with its registered office at Suite 1701, 17/F, Lincoln House, Taikoo Place, Quarry Bay, Hong Kong.}