Munis, Mortgage-Backed Securities Among Advisors’ Top Picks for 2026

After a few difficult years, fixed income may be getting its groove back in 2026.

The inflation shocks from the COVID-19 era are in the rearview, and the positive correlation that occurred between fixed income and equities turned negative last year. That’s good news for diversified portfolios. Plus, the Federal Reserve may be in easing mode for monetary policy, but interest rates aren’t likely to return to pre-COVID levels where they were near zero, said Eric Sterner, chief investment officer of Apollon Wealth Management. “We think there’s going to be a lot more value to those fixed-income allocations moving forward, which is music to our ears — and I’m sure all investors,” he said. 

So advisors are going all in on fixed income, but of course, tailoring their guidance; portfolio construction is always client-specific. There is a general theme several advisors are following this year, however: Stick to quality. “You don’t have to stretch much to get good income,” said Brian Schaefer, portfolio manager at Johnson Financial Group. 

Who Needs Fannie or Freddie?

With spreads between US Treasuries and other asset classes still tight, the most attractive area is in the securitized sector. Both agency and non-agency mortgage-backed securities and commercial mortgage-backed securities are good bets, Schaefer said. He works with a high-conviction manager in the securitized-credit sector. But be careful, because without an agency’s government guarantee, such as one from Fannie Mae or Freddie Mac, these investments can sometimes require extra due diligence.

David Koch, director of portfolio management at Halbert Hargrove, is also a fan of non-agency mortgages, saying with home prices climbing sharply over the past five years, these assets offer a chance to capture higher yield over agency debt. “We’re comfortable taking some of that risk in the non-agencies because there’s such a big cushion with home prices and the equity people have in them,” Koch said.

Munis Remain a Good Buy

Municipal bonds provided elevated returns in 2025, and they are still a good idea for high-net-worth clients, Schaefer said. He’s encouraging clients in the top two tax brackets to extend maturities to the longer end of municipal bonds. Yields continue to rival the long-term equity returns at around 6% to 7%, which are historically high. “A lot of that market will depend on supply and demand,” Schaefer said. “Last year was a very high-supply year; this year could be better. If that’s true, then we could get a little bit of a tailwind there.” 

For conservative investors who aren’t in the highest tax brackets, Schaefer said Johnson Financial runs a very high-quality, intermediate-term, separately managed account containing a mix of high-quality investment-grade corporate and US Treasury bonds with about a four-to-five-year average maturity and a yield “in the neighborhood of the low fours right now. The yields are above inflation, which is something that hasn’t happened for many years.”

How Long We Talking?

Brent Coggins, chief investment officer at Triad Wealth Partners, expects rates to continue to fall, following a path to neutral because of slowing inflation, not because of recession fears at the Fed. With the yield curve normalizing again, investors likely will be compensated for taking duration risk; nevertheless, the firm is staying slightly underweight duration.

“The bond market is smart. Right now, it’s saying that the curve is going to steepen over the next few years, and that is going to correspond with a Fed easing cycle, so long bonds are susceptible to re-rating and volatility,” Coggins said. Consequently, Triad is reducing exposure to long-term US Treasuries amid potentially heightened bond-market volatility to mitigate persistent inflation risks and possible renewal of fiscal concerns. 

Schaefer’s firm extended duration to about six years from four years as it expects the yield curve will continue to steepen most notably in the short end. “We want to be extending out and locking in some of those attractive yields for a longer period of time, and then you can get some roll-down return,” he said.

High Yield and Private Credit

Sterner said the firm’s models are a mix of core bonds, dynamic global bonds and high yields, and his firm, Apollon, is slightly increasing its allocation to high yield. The firm has about 10% in dynamic bonds and 12% in high yield; it’s bullish on the economy, and credit quality in junk bonds is high as larger corporations’ balance sheets are in good shape, he said. “Roughly over 50% of the high-yield universe is rated double B or higher, and pre-Great Financial Crisis, only about 40% of high yield was higher rated,” he said.

Koch said diversification remains important, but there’s no reason to chase yields. “You definitely want to stick to quality. We’re not afraid of high-yield (bonds), but you definitely don’t want to be bottom-feeding right now,” he said. Instead, Koch sees value in private credit, even as the market has grown. Given some of the cracks seen in the sector, such as the surprise First Brands bankruptcy last year, Koch said it’s important to be cautious and stick to high quality and strong managers. He has a mix of private fixed income including middle market, direct lending and asset-based lending. He has some private commercial mortgage-backed securities, which he considers part of the fixed-income sleeve. Koch has a 50/50 split between public and private fixed-income. In addition to yield, it also offers diversification, saying that many of the markets don’t exist in the public space.

That’s Juicy. Schaefer uses private credit, but he allocates it to the alternative sleeve because the loans are private. Johnson Financial accesses private credit through interval-fund-type vehicles and their limited liquidity. “You have some liquidity, but we’re viewing it as a long-term play, and we’re willing to accept the lower liquidity for a higher interest rate,” he said.

Coggins is watching private credit but not invested. “We want to see how the market reacts to the Fed getting back to neutral and how managers can weather further shocks. In the meantime, we feel there is plenty of juice in the public debt markets for our investors,” he said.