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Steep Yield Curve Opens a Window for Bond Investors

BY | ETF Database
6:24 am ET 09/25/26 | 7 VIEWS
  • Related Symbols
  • TMB
The U.S. Treasury yield curve’s slope is more attractive now than it has been in over 15 years, according to Thornburg Investment Management.Key Takeaways: The Treasury yield curve has moved from inverted to its steepest slope in more than 15 years. Corporate bond yields have compressed more than Treasury yields since 2023, narrowing the reward for taking credit risk. TMB rotates across sectors and maturities instead of leaning on one corner of the bond market. The yield curve spent much of 2022 and 2023 inverted, with short-term yields running higher than long-term ones. Initially, it discouraged investors from locking up money for longer, but the relationship has since flipped. Thornburg’s report, “Fortune Favors the Disciplined,” calls the current slope the most attractive it’s seen in more than 15 years. For years after the 2008 financial crisis, ultra-low rates meant investors mostly used Treasuries as a defensive holding, not as a source of yield. Now that the curve has steepened, Thornburg said it opens a window for extending duration, or holding longer-maturity bonds. That can add income without adding much volatility or credit risk See more: Credit Spreads Look Priced for Perfection, Thornburg Says Corporate bond yields have compressed more than Treasury yields since 2023, the report noted. That means investors get comparatively less extra income for taking on credit risk than they did a few years ago. That shift makes high-grade duration — once used mainly to hedge risk — a more competitive source of income on its own. The combination of a steep curve and compressed credit spreads is why Thornburg favors a flexible approach. Rather than betting on one part of the market, the firm looks to rotate across sectors and maturities.How TMB Plays a Steepening Yield CurveLon Erickson, Christian Hoffmann and Ali Hassan manage the Thornburg Multi Sector Bond ETF (TMB ) as a team, according to the firm. Hoffmann, Thornburg’s head of fixed income, also co-authored “Fortune Favors the Disciplined.” The actively managed fund launched February 4, 2025, with $261.74 million in assets. Thornburg builds TMB to go wherever relative value shows up. Rather than committing to one sector, credit tier or maturity, the fund actively shifts across corporate bonds, securitized debt, and Treasuries as conditions change. Even so, TMB isn’t simply making a bigger bet on interest rates to capture that trade. Its sensitivity to rate changes, a measure investors call duration, actually runs shorter than its benchmark’s: 4.2 years versus 5.6 years, Thornburg noted. Instead, the fund leans on picking individual bonds and sectors for extra yield. Corporate bonds made up 39% of the portfolio as of August 31 — well above the benchmark’s 30.2% weighting. Since launching, TMB has returned 5.45%, edging past the benchmark’s 5.32% gain, Thornburg noted. TMB spreads that flexibility across 634 holdings, according to Thornburg. Its top position, a U.S. Treasury note, accounts for just under 10% of assets. The remaining assets are spread among smaller allocations in corporate bonds, mortgage pools, and structured debt. For more news, information, and analysis, visit our Portfolio Strategies Content Hub.

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