A bond guru expects yields of up to 8% from them. How should you build a portfolio?

Dan Ivesin, Chief Investment Officer at Pimco and manager of the Pimco Income Fund—the world’s largest actively managed bond fund—suggested that bonds could yield investors 7–8% annually in the coming years. According to him, this return will be driven by soaring bond yields, which have approached multi-year highs, Barron’s reports.

“We can deliver 7% or 8%. It’s possible to build a high-quality portfolio and achieve the highest returns in 25 years,” said Aivesson at a conference in New York organized by the investment newsletter Grant’s Interest Rate Observer. In his view, bonds will yield more than many other asset classes.

The Pimco Income Fund has been in existence for nearly 20 years; it can invest in any segment of the debt market and manages $222 billion. The portfolio’s current yield is approximately 5.5%, and the average maturity of the securities is 10 years. Since the beginning of 2026, the fund has lost 1.8%—it has been a difficult year for most bond markets.

The fund’s main investment is in mortgage-backed securities. As of September 30, 36% of the portfolio consisted of securities issued by the mortgage agencies Fannie Mae and Freddie Mac, with another 17% comprised of mortgage bonds from other issuers. Corporate bonds, including high-yield bonds, accounted for just 9%. Aivessin considers agency securities to be more profitable: they yield more than one percentage point above 10-year Treasuries, while the spread between high-credit-quality corporate bonds and Treasuries has historically been small.

Ivesina is concerned about the enormous amount of debt being raised for data centers and AI investments. He is willing to buy bonds issued by such borrowers only if they provide additional credit protection.

The fund manager also sees opportunities outside the U.S. Emerging markets account for 10% of the fund’s portfolio, and among them, Ivesinu is particularly fond of Brazilian bonds denominated in reais. He currently considers the dollar to be overvalued relative to other major currencies and expects it to weaken gradually.

The main question clients ask Ivesin is about the threat of a growing U.S. budget deficit. It is approaching $2 trillion a year, or 6% of GDP, even though the country’s economy is in good shape. The fund manager advises diversifying investments across countries, although dollar-denominated bonds make up the bulk of his fund’s assets.

Yields on government bonds in developed countries rose sharply in the third quarter. According to Reuters, Treasury yields rose more between July and September than in any other quarter of the 21st century. Among the reasons: uncertainty stemming from the war in the Middle East, a growing budget deficit, tighter monetary policy, and competition from corporate bonds that companies are issuing to fund the construction of AI infrastructure.

Since then, the market has calmed down somewhat. On October 13, yields on 10-year Treasuries fell to 5.21% and on 30-year Treasuries to 5.56% following a drop in oil prices. The yield on 10-year French bonds fell to 4.85%, and the yield on 10-year British gilts fell to 5.4%, according to Trading Economics.

Rising yields are making mortgages, auto loans, credit cards, and student loans more expensive, Fox Business reports. This week, investment giant BlackRock, with over $15 trillion in assets under management, raised its rating on U.S. Treasury bonds for the first time in six years. It now rates short-term bonds as “better than the market” (Overweight), and long-term Treasuries as neutral. At the same time, BlackRock downgraded its recommendation on U.S. stocks—from Overweight to neutral—and partially took profits on them to increase its allocation to Treasuries.

BlackRock has long predicted that interest rates would remain high for an extended period, and now Treasury yields have reached levels consistent with that forecast. By buying bonds now, BlackRock aims to lock in attractive interest payments on them, the investment giant explained in its latest weekly review.

This article was AI-translated and verified by a human editor