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US Treasuries have gained for five straight days on haven demand amid stock volatility, with the 10-year yield falling 10 basis points on Tuesday to 4.3%, the lowest level in more than two months. Since mid-January, the 10-year yield has dropped 50 basis points as investors grew increasingly concerned over how the US economy will cope with the potential impact of tariffs.

US consumer confidence in February has fallen the most since August 2021, according to the latest Conference Board survey, marking a third consecutive month of decline. The expectations index, which measures sentiment about the economy six months ahead, fell sharply to an eight-month low of 72.9. Historically, a sustained reading below 80 has signaled a higher recession risk, though most respondents still do not expect an outright downturn.

The data followed recent disappointments in retail sales and service activity, with Walmart鈥檚 conservative forward guidance adding to concerns about consumer spending.

The US economy is still in good shape, and we do not think the announced tariffs will necessarily lead to a major negative impact on growth. But we believe market volatility will likely persist, and the recent movement in bonds reaffirmed that quality fixed income should remain an integral part of a resilient portfolio that can help investors navigate uncertainty ahead.

The return outlook is appealing. The initial yield has historically been a good proxy for longer-term expected returns and return potential, and the 10-year yield remains at the higher end of its distribution since 2008. The current yields should also help cushion the total return outlook if yields rise in the event of a tariff shock or a strong growth scenario. Our base case calls for two additional interest rate cuts by the Federal Reserve later this year as inflation moderates, supporting the potential for capital appreciation.

Quality bonds can help stabilize portfolios. Quality bonds are among the safest investments in an investor鈥檚 portfolio, as they can preserve capital and reduce equity volatility. If US growth slows more quickly than expected, we would expect swifter monetary policy easing to underpin a sharp rally in quality bonds.

Bonds outperform cash, provide durable portfolio income. Historically, the probability of bonds outperforming cash rises with longer holding periods鈥攆rom 65% over 12 months to 82%, 85%, and 90% over five, 10, and 20 years, respectively. With the global rate-cutting cycle still having further to go, we think investors should optimize their cash holdings and consider ways to boost portfolio income.

So, we think quality bonds will continue to play a critical role in an uncertain environment as they offer an attractive source of durable income. Investors can also consider diversifying and boosting portfolio income through diversified fixed income strategies, senior loans, and private credit, and equity income strategies.