As 2026 has progressed, many investors have overlooked the resilience of their fixed-income holdings amid the headwinds of rising Treasury yields, stubborn inflation, and a Federal Reserve that has not only stopped cutting rates but is also considering a possible rate hike. While it is true that bond prices move in the opposite direction of interest rate changes, it is the total return of bonds, or price return plus coupon return, that matters in our client portfolios. Figure 1 is courtesy of Charles Schwab1 and shows that over the past 25 years, coupon payments, not price appreciation, have been the key driver of most bond total returns. That is particularly true for non-TIP U.S. bonds.
Figure 1: Components of Bond Total Returns for Past 25 Years
So how have bonds held up through mid-2026? Better than one might expect given the headwinds described above. The yield on the 10-year Treasury bond has increased by 0.50% during that time but our recommended U.S. bond funds are actually up 1–2% in total return. This is because bond funds now have higher coupons and starting yields that can withstand a drop in bond prices.
Figure 2 is courtesy of TCW2 and illustrates that relationship by showing how U.S. bond yields as of mid-June 2026 can support total return potential across a range of 12-month rate scenarios. Per TCW, if rates move up 0.5%, higher coupon income can help create a yield buffer against a drop in prices. If rates decline by 0.5%, bonds may benefit from both coupon income and price appreciation. As we monitor interest rate shifts, higher starting yields show the value fixed income may bring to a diversified portfolio. At Brown Financial Advisory, we continue to evaluate our holdings and how fixed-income may fit within your broader plan, risk profile, and goals.
Figure 2: 12-Month Forward Total Return Potential (%)
Sources:
- 2026 Q1 Charles Schwab Quarterly Chartbook (2026). Schwab Asset Management. https://www.schwabassetmanagement.com/insights-news/quarterly-chartbook ↩︎
- By the Numbers: Why Starting Yields Matter. (2026, June). TCW. https://hub.tcw.com/by-the-numbers-why-starting-yields-matter. ↩︎
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