As we enter the second quarter of 2026, there is little sign that volatility, heightened by the Middle East crisis, is easing. Vicky Browne, investment specialist, global aggregate and absolute return, at BNP Paribas Asset Management (BNPP AM), explains why absolute return bond strategies, which provide diversification and smoother returns across market cycles, might be a safeguard for portfolios, helping investors stay on course amid ongoing market surprises.
Q1: Where does an absolute return bond strategy sit in a portfolio today, and what exactly is it designed to do?
BNPP AM: We designed our global absolute return bond strategy to deliver positive performance across the cycle — in both bull and bear markets — and to outperform a cash benchmark. A core objective is smooth, consistent returns with emphasis on capital preservation: we operate to a soft rolling 12-month drawdown target of no more than –2.5%. However, drawdowns may be larger than this in the short term if the market environment is volatile.
This could be realised through an unconstrained global fixed income mandate. Being free from index constraints allows us to seize opportunities across developed-market rates, emerging-market debt, investment-grade and high-yield credit, structured securities, and, selectively, forex. The strategy also exploits a –4 to +4-year duration range, allowing flexibility for adjusting its position when yields move up or down.
Q2: Given the evolving fixed income environment, what are the observations regarding portfolio allocations?
BNPP AM: The post-pandemic environment has altered the drivers of the bond market. We are now observing increased return dispersion driven by ongoing geopolitical tensions, unpredictable growth and inflation patterns, and rising fiscal pressures in many economies. This makes narrow, benchmark-focused strategies more vulnerable.
See also: The death of 60/40 has been greatly exaggerated: Capital Group
Investors are increasingly favouring flexible, unconstrained approaches that can rotate across regions, sectors, maturities, and instruments to deliver positive, uncorrelated returns throughout the cycle.
Q3: How do absolute return bond strategies manage interest rate risk, and can you provide a recent example of how this was implemented?
BNPP AM: Interest rate risk is actively managed across a –4 to +4-year duration window, making this approach more flexible than traditional fixed income strategies. Because we are unconstrained, we only take duration risk when there is an opportunity for an asymmetric payoff. Otherwise, we stay out, even if that means skipping certain sectors or markets.
See also: CGSI’s William Tng moves stocks with bold, on-point calls
Right now, we see strong upside in interest rates, so we’ve increased duration in both developed and emerging markets. This adds a defensive, long-duration emphasis to our portfolio. Our focus is on places where we think central banks won’t turn as hawkish as markets expect, or where the fundamentals still support more easing. We have also adjusted positioning to benefit from long-term rate increases in select markets, potentially.
Q4: Are there specific market segments that contribute value within this approach?
BNPP AM: A global, flexible strategy lets us invest across many parts of the bond market — and focus on the spots where the potential “upside vs downside” looks most favourable.
One example right now is local emerging market bonds. We increased exposure after the March sell-off because the prices were more attractive. Buying at these better entry levels can boost our income and support future returns. We also favour local-currency over hard-currency debt.
Q5: Is an absolute return bond strategy intended to replace traditional fixed income in a portfolio, or should it be used alongside other fixed income investments and why?
BNPP AM: Alongside is the right place. This is a long-term, core, evergreen solution — not a tactical “buy-in, buy-out” trade. Combining an absolute return bond strategy with traditional fixed-income assets, such as high-yield and emerging-market bonds, helps spread risk. It can improve overall performance through its flexibility and diverse sources of return.
Q6: How do active research and global expertise influence your strategy?
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
BNPP AM: Executing unconstrained fixed income strategies demands specialised expertise. Our approach to pursue the global unconstrained fixed income universe involves working closely with the fixed income teams within our Global Fixed Income platform. We seek to generate the best ideas from across the unconstrained, multi-sector universe by leveraging their vast expertise, whether in US agency mortgage-backed securities or European inflation. We believe that sharing information and respectfully challenging one another allows us to explore the vast universe more effectively and ultimately deliver better outcomes for our clients.
To learn how BNP Paribas AM’s Absolute Return Bond strategy navigates uncertainty with flexibility, visit https://edgesg.link/bnp-asset/individual or https://edgesg.link/bnp-asset/institutional
Source: BNP Paribas Asset Management, as of end March 2026. No assurance can be given that any forecast, target or opinion will materialise
Disclaimer
The value of investments and the income they generate may go up or down, and investors may not recover their initial investment. Past performance is not a guide to future performance. This advertisement is issued by BNP PARIBAS ASSET MANAGEMENT Singapore Limited, “the investment management company”, incorporated in Singapore with its registered office at 20 Collyer Quay, #01-01 Collyer Quay, Singapore 049319, Company Registration No. 199308471D. This advertisement has not been reviewed by the Monetary Authority of Singapore. Investors considering subscribing for the financial instruments should read the most recent prospectus or Key Information Document on the website. Opinions included in this advertisement constitute the judgment of the investment management company at the time specified and may be subject to change without notice.
