CIO Insights: Good Yield Hunting

10 minute read

If you grew up in the 1990s, chances are Good Will Hunting was one of those movies that stuck with you. Back then, yields (the income you earn from an investment) were also a big part of the financial story – starting from high levels in the early ’90s but steadily moving lower as inflation was brought under control. In a way, finding “good yield” became harder as rates came down, much like Will’s journey of figuring out where the real value in life lay.

Fast forward to today, and we’re back in a similar spot. Global interest rates are on their way down, and that’s putting yield back in focus. Cash equivalents like ultra-short-dated US Treasuries have recently offered their highest payouts in years, but those returns have become less attractive now with falling interest rates. In fact, year to date, cash equivalents have underperformed bonds, equities and gold.

That makes the case for diversifying your income sources – balancing opportunities in fixed income with yields from pockets of the equity market, while weighing the trade-offs each brings. For this month’s CIO Insights, we canvassed the yield universe to answer two key questions: Where can you find yield now, and how should it fit within a diversified portfolio?

(A quick note: unless otherwise stated, the yields we discuss are in local-currency terms. This is because dividends and coupons are paid in each market’s own currency, and layering on FX could make comparisons less clear by conflating income with currency effects.)

Key takeaways

• Bonds remain a key income source, but selectivity matters. USD cash equivalents like ultra-short US Treasuries still earn around 4% with very low risk. US aggregate bonds and securitised credit also look compelling from a valuation perspective: their spreads – a measure of relative value – are trading close to their long-term averages, while providing all-in yields of 4-5%. Meanwhile, high yield and emerging market (EM) debt still offer high absolute yields of 6-8%, but spreads are relatively low compared to history. For investors with access to private markets, private credit may add extra return potential – with limited liquidity as the trade-off.
• Certain parts of the equity market can also be solid sources of yield. Beyond fixed income, there are meaningful income opportunities in equities. On both an absolute and historical basis, Singaporean equities and various regional REITs stand out with their  attractive dividend yields of 4-5%. These can provide additional cash flow alongside bonds and, importantly, also offer growth potential that enhances a portfolio’s total return over the longer run.
• Yield is only one piece of the investing puzzle. Different assets deliver income at different risk levels, and comparing yield against volatility helps highlight which ones have historically offered higher income for a given level of price movement. Yield alone, however, doesn’t tell the whole story: growth potential and total returns are also important considerations. A resilient portfolio strikes the right balance between steady income and long-term capital appreciation – a balance that’s driven by your risk tolerance, investment horizon, and goals.

(See our Glossary at the end of the article for descriptions of terms used.)

In fixed income, it pays to be selective

When it comes to generating income, investors often turn to bonds for their relatively stable cash flows and predictable payouts. Today’s market, however, is far from straightforward. With policy rates still high, yield spreads compressed – i.e. lower – in many sectors, and duration risk elevated, investors should be more selective in their fixed income choices.

Elevated US policy rates mean there are still opportunities in short duration 

Cash equivalents – like ultra-short US Treasuries – continue to offer yields of around 4% with minimal risk, making them a steady anchor for income-focused allocations. In addition, hybrid securities like floating-rate notes provide a pickup over short-term rates and can be an effective income-generating tool while policy rates remain high.

As we’ve shared in the past, we remain cautious on long-duration US government bonds. Concerns about fiscal sustainability could keep term premiums – the extra yield investors demand for holding longer-term bonds – elevated, limiting the scope for price gains.

(Read more: CIO Insights: The long view on “Liberation Day”.)

When yields are high, spreads show which sectors still look appealing

The yield spread – or the extra return a bond sector offers over the risk-free rate – is a useful gauge of how attractively a sector is priced. When choosing between types of bonds, it helps to compare spreads to see where investors are being better compensated for taking on risk.

In today’s environment, many parts of the bond market have tighter spreads, meaning you're not getting as much extra yield for taking on additional risk, as shown in Chart 1 below.

The gold dots mark current spreads, while the blue diamonds show long-term averages. Where the gold dots sit below the blue diamonds, spreads are tighter than usual, suggesting less value. The grey bars represent the historical range, giving a sense of how today’s spreads compare to past extremes.

Healthy corporate fundamentals support tighter US aggregate bond spreads

For most sectors shown in Chart 1 above, current spreads sit below their historical averages and toward the lower end of their historical ranges – suggesting less attractive pricing. That said, some areas stand out as closer to fair value: core fixed income sectors like US aggregate bonds and investment-grade corporates are trading near their long-term average spreads. While spreads are tight across much of the bond landscape, that is supported by solid fundamentals.

For one, as shown in Chart 2 below, US corporate debt is still near multi-year lows, or about 31% of GDP as of Q1 2025. Meanwhile, corporate cash levels remain healthy: blue-chip US companies held about US$1.14 trillion in cash as of Q1, only slightly below the US$1.21 trillion peak in late 2023 (1). 

These substantial cash reserves make it less likely that high-grade companies will struggle to repay their debts, and are likely the reason why investors aren’t demanding much extra yield to hold their bonds. Some analysts also argue that concerns about government debt could be supporting additional demand for their corporate counterparts (2).

Securitised credit offers slightly wider spreads relative to history

Securitised credit looks more attractive: as illustrated in Chart 1 above, mortgage-backed securities (MBS) and asset-backed securities (ABS) are offering spreads slightly above their historical averages – meaning investors are getting a bit more yield than usual. 

For MBS, spreads are at their most attractive levels in more than a decade, partly reflecting the Fed reducing its MBS holdings as part of its quantitative tightening program (QT). As QT winds down and interest rates start to fall, demand for MBS could pick up. This creates a potential double benefit for the sector: attractive current yields plus the potential for capital gains as spreads normalise.

High yield and EM debt offer attractive yields, but at a premium

By contrast, high yield and EM debt, while offering higher absolute yields, have spreads that are both meaningfully below their historical norms and near historic lows. These bond sectors’ yield spreads are more than 1 percentage point lower than their 10-year averages, meaning investors are being paid significantly less extra yield than usual for taking on their higher credit and default risks.

However, this makes sense when you consider the economic backdrop. In easing cycles where growth remains positive, it's not unusual for spreads to stay tight. Current macro indicators point to this scenario, with a relatively low risk of recession in the near-term:

• Global purchasing managers indexes (PMIs), illustrated in Chart 3 below, are still pointing to economic expansion;
• The labour market is cooling, but still largely steady;
• Many central banks are well into their rate cutting cycles amid easing inflation;
• Stronger fiscal spending from governments worldwide is helping to support growth. 

This is why bond sectors like high-yield and EM debt can still offer decent income potential for investors willing to take on higher risk. While tight spreads mean valuations are less compelling than in the past, absolute yields remain elevated by historical standards. Importantly, history shows that starting yields have been among the most reliable indicators of long-term bond returns. Taken together, this suggests that investors could benefit from locking in today’s relatively high rates while they are still available.

Private credit offers higher income and stability – at the cost of lower liquidity

For investors with access to private markets, private credit can also offer incrementally higher income potential in exchange for lower liquidity. In particular, strategies that focus on senior debt – loans that are first in line to be repaid if a borrower runs into trouble – have historically delivered returns in the 6–10% range and are often seen as more defensive, with the potential for stable returns.

Equity investors can also generate income from dividends

While bonds are traditionally seen as the go-to for income, certain equity segments where dividend payouts are structurally higher, such as dividend-focused equity indices, REITs (real estate investment trusts, which own and operate income-generating real estate) can also contribute meaningfully to a portfolio’s yield.

From our canvassing of the equity universe, Chart 4 below shows that several sectors are yielding well above their long-term averages, making current income opportunities more attractive by historical standards.

REIT yields are elevated, and supported by improving fundamentals 

In several major markets, REITs are offering yields that are not only higher than their long-term averages – 5%+ in Singapore and 4-4.5% in Europe and the US – but also reasonably supported. 

Structurally, their payout stability is underpinned by regulatory requirements that typically mandate distributing around 90% of income. At the same time, the macro backdrop is also turning more supportive: after a downturn in 2022 driven by aggressive global rate hikes, moderating interest rates and improving supply-demand dynamics are helping to stabilise earnings – though we note that persistently high long-term rates could remain a drag in the US.

Beyond the cyclical picture, secular growth drivers in segments such as industrial, health care, and data center REITs – supported by e-commerce, aging demographics, and AI-driven demand for servers – provide an additional layer of durability to future income streams.

Bank and REIT payouts underpin Singapore equity yields

Singaporean equities also stand out with current dividend yields around 5% – higher than any other major equity market and well above their own history. This reflects the market’s tilt toward financials and REITs, sectors that generally run above-average payout ratios

For Singapore’s big banks, strong earnings, healthy capital buffers, and a dividend culture that targets payout ratios of 50–60% (which are substantially higher than markets like the US) underpin their elevated yields. For the country’s REITs, cyclical tailwinds are emerging alongside structural drivers: easing borrowing costs, and a tourism boom contributing to demand for the hospitality and retail sectors, among others.For investors seeking both income and growth, REITs and dividend-paying equities can be valuable complements to fixed-income holdings in a diversified portfolio. Alongside the steady income they generate, these assets also offer the potential for capital appreciation – giving them a dual role in enhancing long-term portfolio returns. 

Consider yield through the lens of risk

A high yield may look appealing on the surface, but it’s only part of the story. Different assets deliver income with very different levels of risk, and one way to visualise this is by comparing yield against volatility, as shown in Chart 5 below.

When you adjust for volatility, the opportunities above the trend line stand out as delivering relatively more yield for their level of risk, while those below the line offer less compelling compensation. 

• Through this lens, several bond sectors – particularly high yield and EM bonds – stand out for offering above-average yields with lower historical volatility than equities. Granted, their higher coupons do come with higher credit risk. But by providing more cash flow earlier, they shorten duration and help limit price volatility compared to lower-coupon bonds.
• Among equities, REITs and dividend-oriented sectors and regions – such as Singapore – sit above the line, offering relatively attractive yield for their level of volatility. At the same time, other equity sectors – like technology – provide little income despite meaningful price swings. For equities, the trade-off for taking on higher volatility is less about income and more about the potential for long-term capital growth to drive total returns.

Yield is just one piece of the puzzle in a well-rounded portfolio

Looking through the yield-versus-volatility lens shows that not all income is created equal. Some assets offer a more rewarding yield for risk taken, while others provide little compensation. Yield alone, however, doesn’t determine portfolio strength.

Our takeaway: income and growth should be considered together. A portfolio built solely for yield may limit long-term wealth creation, while one focused purely on growth can lack stability during downturns. The right mix depends on your:

• Risk appetite: How much volatility can you tolerate without changing your plan?
• Investment horizon: How long can you stay invested through market cycles?
• Return objectives: Do you prioritise steady cash flow, long-term capital appreciation, or a mix of both?

In practice, every investment decision involves trade-offs, and the most resilient portfolios balance income, growth, and risk management across different market environments. What ultimately matters is how income and growth work together to support your goals – providing stability in the short run and compounding wealth in the long run.

Authors

Stephanie Leung, Chief Investment Officer

Stephanie has more than 17 years of experience managing multi-asset portfolios globally for Goldman Sachs, institutional investors, and family offices.

Justin Jimenez, Head of Macro and Investment Research

Justin has over a decade of experience in economic and investment research, and contributes to forming the investment office's perspectives on the global economy and asset classes.

Glossary

Yield spreads

The extra return you get for choosing a riskier investment over a safe one. If safe government bonds pay 3% and corporate bonds pay 5%, the spread is 2%.

Payout ratio

The percentage of a company's earnings that it distributes to shareholders as dividends. For example, if a company earns $100 and pays $50 in dividends, its payout ratio is 50%.

Risk-free rate

The return on the safest investments available, serving as a baseline for comparing other investments. US government bonds, also known as Treasuries, are a common benchmark.

Investment-grade

High-quality bonds from financially stable governments or companies that have low odds of default – the risk that they won't be able to pay back the money they borrowed.

Aggregate bonds

A broad mix of different bond types – government, corporate, etc. – designed to represent a swathe of the overall bond market.

Securitised credit

Assets created by pooling together loans or other debts. Examples include mortgage-backed securities (MBS), which are backed by home mortgages, and asset-backed securities (ABS), which are backed by other types of loans like credit card debt.

References

1. Steinberg, E. M. (2025). Corporate cash levels are starting to fall. Bloomberg. Retrieved from: https://www.bloomberg.com/news/articles/2025-06-07/corporate-cash-levels-are-starting-to-fall-credit-weekly
2. Ashworth, M. (2025). Credit spreads aren't hiding a market timebomb. Bloomberg. Retrieved from: https://www.bloomberg.com/opinion/articles/2025-08-13/credit-spreads-aren-t-hiding-a-market-timebomb