[Matt Diczok speaking throughout]
[Music in background]
[Animated glitches containing various letters flip to spell out the following financial terms]
On screen copy:
Bear Market
Business Cycle
Risks
Bull Market
Fixed Income
Inflation
Equities
Diversification
Interest Rates
Opportunities
Geopolitics
Market Catalysts
Market Decode™
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On screen disclosure:
Please see important information at the end of this program. Recorded on 3/4/2026.
What do geopolitics and artificial intelligence have in common? Both have been stirring up markets in 2026, prompting rounds of volatility.
On screen copy:
Matthew Diczok
Head of Fixed Income Strategy
Chief Investment Office
Merrill and Bank of America Private Bank
And with heightened risks expected to stick around — especially in a midterm election year — it's time we talked about ballast. In boats, it's that steady weight that keeps you upright. In your portfolio, it's that important source of diversification and predictable returns that helps weather the shocks of choppy market conditions.
This year, the Chief Investment Office believes fixed income is positioned to play that role — and here's a quick look at possible opportunities, and risks that we're watching.
First, let's look at the U.S., which remains one of the most attractively valued bond markets globally based on inflation-adjusted "real" yields.
On screen copy:
January's U.S. Treasury note & bond auctions:
- 19% allotted to foreign accounts
- Highest share in 3 years
Source: U.S. Treasury. Data as of Feb. 24, 2026.
As the backdrop, global capital continues to flow into the U.S., supporting Treasurys and corporate bond demand.
10-year Treasury rates, for example, have been holding at approximately 4%, putting real yields in the U.S. meaningfully higher than other large economies around the world. Good news for investors.
For those who have been heavy in cash, this could be a good moment to consider extending duration toward a neutral position, lock in attractive yields, and potentially avoid reinvestment risk if short-term rates move lower from here.
On screen copy:
Muni bond sectors to watch:
Hospitals, higher education
As a category, municipal bonds have been posting strong performance this year. The core backdrop still looks healthy: our read of muni credit quality remains positive thanks to solid tax revenues, robust rainy-day funds and continued resiliency of the U.S. economy.
Internationally, a couple of currents matter. Europe and Japan are both leaning into multi-year spending on defense and infrastructure, which can support growth and credit quality over time. If the value of the U.S. dollar eases further, that can also improve unhedged returns for U.S. investors holding foreign bonds.
On screen copy:
Investment-grade bond fund inflows averaged $9 billion per week in January.
Source: JPMorgan data as of Jan. 29, 2026.
In the arena of investment-grade corporate bonds, there's reason to be cautiously upbeat. The global build-out tied to AI is stoking a flood of debt issuance, which so far has been well absorbed by the corporate bond market. Credit spreads have gotten tight, and we're watching to see whether more supply yet to come could apply additional pressure on prices. But all-in yields still look compelling in our opinion.
On screen copy:
Fixed income market risks:
- Resurgent or accelerating inflation
- Change in Fed policy stance
- Slowing economic growth or confidence based on uncertainty
On the risk side, investors need to pay attention to the macro forces: for example, if inflation does re-accelerate, or if economic growth slows, the fixed income outlook could change considerably.
Bottom line: as you ride out any future rough patches in markets in 2026, an allocation to fixed income investments — focused on credit quality and stable income above inflation — may be just the ballast you need.
And that's the Market Decode.
On screen disclosures:
IMPORTANT DISCLOSURES
The opinions expressed are as of 3/4/2026 and are subject to change.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT). Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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[End of transcript]
With geopolitical events and artificial intelligence among the factors driving rounds of market volatility in early 2026 — and with risks expected to persist in a midterm election year — investors may want to take a closer look at the role fixed income plays in their portfolio strategy. Just as ballast steadies a boat, bonds can potentially help provide stability through unpredictable market conditions.
With global capital flowing into the U.S. and real yields on Treasurys remaining meaningfully higher than in other major economies, fixed income is positioned to offer diversification as well as a measure of predictability amid ongoing uncertainty. For investors holding elevated levels of cash, bonds may also offer opportunities to lock in yields before interest rates potentially move lower.
"An allocation to fixed income investments — focused on credit quality and stable income above inflation — may be just the ballast you need," explains Matthew Diczok, the CIO's Head of Fixed Income Strategy, in the video above. In a period marked by uncertainty and volatility, bonds can potentially help keep portfolios moving forward.