For most of the last decade, bonds were the boring part of a portfolio. But with rising yields the scenario is changing.
On October 7, the yield on the 10-year US Treasury crossed 5.35%, its highest since 2002. The 30-year bond touched 5.70%. By October 9 the 10-year had eased to about 5.23%, which is still a level most investors under 40 have never seen.
That matters because the 10-year Treasury is the closest thing finance has to a universal price tag for money. Mortgages, corporate loans, stock valuations and, yes, Indian bond yields all take their cue from it.
So in this blog, we’ll look at why yields have jumped, what it means if you’re thinking of buying bonds, and which global bond funds fit which kind of investor.
Why are yields rising?
There isn’t one factor here. There are four, and they’re feeding off each other.
Oil. The conflict involving Iran has kept crude above $100 a barrel, with no timeline yet for the Strait of Hormuz reopening. Expensive oil seeps into the price of everything else, so inflation expectations stay high. At one point the correlation between crude and the 10-year yield hit 0.96. In plain words, the two were moving almost in lockstep.
The Fed is hiking again. In September, the US Federal Reserve raised rates by 0.25 percentage points to a range of 3.75% to 4%. It was the first hike since 2023, and the vote was unanimous. Sixteen of 18 Fed officials expect at least one more hike this year, and the next meeting is on October 27 and 28.
Too many bonds, not enough buyers. The US government is expected to run a deficit of about $1.9 trillion this year, or 5.8% of GDP. Its interest bill alone is above $1 trillion. Big tech is also borrowing heavily to fund AI, and more supply means buyers can demand a higher yield.
Nobody is propping up the long end. The Fed has made it clear it cares about short-term rates and won’t step in to push long-term yields down. So 30-year bonds have to find a price that pension funds and insurers find attractive on its own.
But this is not just affecting or restricted to the US. Japan’s 10-year yield is at 3.11%, a three-decade high. UK gilt yields are at their highest since 2008, and France’s 10-year is close to 5%.
India hasn’t escaped it either. The 10-year G-Sec hit about 7.21% on October 1, its highest in over two years, pushed up by US yields, oil and expectations that the RBI would tighten too.
First, ask yourself why you want bonds
Before picking a fund, there’s a more basic question. The Wall Street Journal framed it nicely recently: are you a bond trader or a yield farmer?
A trader buys bonds because prices look cheap after the selloff and expects them to rise when yields fall. That’s a bet on where interest rates are headed.
A yield farmer buys bonds for the income. The interest covers a future expense, or simply beats leaving money idle in a savings account.
The difference is important because of something called duration. Duration tells you how much a bond’s price moves when rates change.
A fund with a duration of 5 years loses roughly 5% of its value if rates rise by 1 percentage point, and gains roughly 5% if they fall by the same amount.
So a trader betting on falling rates wants high duration. A yield farmer who would hate watching their principal swing around wants low duration.
There’s one more aspect to this. A single bond held to maturity gives your money back at the end, whatever happens in between. Most bond funds never mature. They keep rolling old bonds into new ones, so what you get depends on market prices on the day you sell.
That sounds worse, but it cuts both ways.
When yields rise, a fund keeps buying new bonds at those higher yields, so its income rises too. The WSJ pointed to the iShares 3 to 7 Year Treasury ETF. Since October 2020, its price has fallen about 15%, yet its total return including interest is nearly flat. The extra income slowly made up for the price drop.
Types of Bonds
Here’s how fund managers and strategists are sizing up the different kinds of bond funds right now.
Ultrashort and short-term funds. These hold bonds maturing within about a year to a few years, so they barely react to rate changes. Think of them as parking cash at a better rate. Short-term bond funds suit investors whose priority is protecting capital. Their prices move little when rates change, so they can earn steady income while limiting losses in a rising-rate market. They are not guaranteed, however, and a few funds in the table below are slightly down this year.
The table lists all 21 short-term bond fund share classes in the screener, grouped by what they hold. Returns are as of October 8 and 9, 2026. The screener does not show current yield or duration, so check each fund’s factsheet before investing.
| Fund | Focus | Expense ratio | Currency hedged | YTD return | 1Y return | 3Y annualised |
| Lord Abbett Ultra Short Bond UCITS Fund | US investment grade (ultrashort) | 0.59% | No | +2.35% | +3.36% | 4.85% |
| Amundi US Short Term Bond UCITS Fund | US investment grade | 0.70% | No | +2.55% | +3.69% | 4.96% |
| Morgan Stanley US Dollar Short Duration Bond UCITS Fund | US dollar investment grade | 0.73% | No | +0.67% | +1.62% | 4.17% |
| PIMCO US Short-Term UCITS Fund | US investment grade | 0.85% | No | +2.74% | +3.63% | 4.67% |
| BlackRock US Short Duration Bond UCITS Fund | US investment grade | 0.89% | No | +0.32% | +1.43% | 4.43% |
| BlackRock Euro Short Duration Bond UCITS Fund | Euro investment grade | 0.89% | Yes | +0.42% | +1.35% | 4.51% |
| MFS Limited Maturity UCITS Fund | US investment grade | 1.14% | No | +0.48% | +1.32% | 4.20% |
| AllianceBernstein Short Duration Bond UCITS Fund | Global investment grade | 1.17% | No | +0.50% | +1.21% | 3.51% |
| PIMCO Low Average Duration UCITS Fund | US investment grade | 1.36% | No | -0.66% | +0.22% | 3.44% |
| PIMCO Global Low Duration Real Return UCITS Fund | Inflation-linked | 1.39% | No | +0.32% | +0.72% | 4.53% |
| Lord Abbett Short Duration Income UCITS Fund | US multi-sector | 1.07% | No | +0.56% | +1.70% | 4.55% |
| PIMCO Low Duration Income UCITS Fund | Multi-sector | 1.45% | No | +0.08% | +1.81% | 6.18% |
| Muzinich Enhanced Yield Short Term UCITS Fund | European corporate | 0.89% | Yes | +0.84% | +1.91% | 5.38% |
| Muzinich Enhanced Yield Short Term UCITS Fund (higher-fee class) | European corporate | 1.29% | Yes | +0.52% | +1.50% | 4.95% |
| Pictet EUR Short Term High Yield UCITS Fund | European high yield | 1.22% | Yes | +1.46% | +2.76% | 6.51% |
| Morgan Stanley US Dollar Short Duration High Yield Bond UCITS Fund | US high yield | 1.23% | No | -0.31% | +1.06% | 7.15% |
| Muzinich Short Duration High Yield UCITS Fund | US high yield | 1.29% | Yes | +1.60% | +3.18% | 5.93% |
| AllianceBernstein Short Duration High Yield UCITS Fund | Global high yield | 1.30% | No | +1.03% | +2.24% | 6.75% |
| Allianz Global Investors US Short Duration High Income Bond UCITS Fund | US high yield | 1.34% | No | +0.49% | +0.65% | 4.89% |
| Neuberger Berman Short Duration Emerging Markets Debt UCITS Fund | Emerging markets | 1.08% | No | +0.91% | +2.70% | 7.61% |
| Natixis Short Term Emerging Markets Bond UCITS Fund | Emerging markets | 1.35% | No | +0.09% | +0.95% | 5.29% |
The high-yield and emerging market funds show higher 3-year returns because they carry more credit risk.
Funds for locking in today’s yields
If yields are near their peak, longer-duration funds offer the most upside. The table below shows illustrative one-year returns, assuming about 4.5% income for a short-term fund and about 5% for a longer-duration fund.
| If yields over the next year… | Short-term fund (duration about 1 year) | Longer-duration fund (duration about 6 years) |
| Fall by 1 percentage point | About +5.5% (+1% price, +4.5% income) | About +11% (+6% price, +5% income) |
| Stay where they are | About +4.5% (income only) | About +5% (income only) |
| Rise by 1 percentage point | About +3.5% (-1% price, +4.5% income) | About -1% (-6% price, +5% income) |
The longer fund gains more if yields fall, but can lose money if they keep rising. The funds below fit this approach. Returns are as of October 8 and 9, 2026.
| Fund | What it holds | Expense ratio | YTD return | 1Y return | 3Y annualised |
| Pictet USD Government Bonds UCITS Fund | US government bonds | 0.58% | -2.82% | -2.14% | 3.12% |
| BlackRock Global Government Bond UCITS Fund | Government bonds across countries | 0.98% | -2.31% | -1.57% | 3.47% |
| Goldman Sachs US Dollar Credit UCITS Fund | US dollar investment grade corporate bonds | 0.95% | -3.76% | -3.10% | 5.06% |
| Amundi US Bond UCITS Fund | Core US bonds | 1.03% | -3.50% | -2.82% | 4.53% |
| PIMCO Total Return Bond UCITS Fund | Core US bonds | 1.40% | -3.57% | -2.52% | 4.51% |
All five are down this year because yields rose, which means new investors buy in at higher yields. Pictet’s fund holds only government bonds and has the lowest fee. Investors who prefer ETFs can use the US stocks route, which offers long-dated Treasury ETFs such as TLT, shorter options such as SHY and IEI, and defined-maturity ETFs such as iShares iBonds and Invesco BulletShares.
What locking in a yield means
An individual bond held to maturity pays all its interest and returns the full principal. The return therefore stays close to the yield to maturity (YTM) at purchase, regardless of price changes in between. Defined-maturity ETFs work in a similar way.
Open-ended bond funds, which include all the funds above, do not mature, so their value on exit depends on market prices. Holding a fund for at least its duration usually brings returns close to today’s yield, but this is not guaranteed. Since yields may still rise, many investors build longer-duration positions in stages.
What it means for Indian investors
Returns from US bond funds depend on both the dollar yield and the rupee. India’s 10-year yields about 7.2% against about 5.2% in the US, so a US bond outperforms in rupee terms only if the rupee weakens by more than about 2% a year. Currency effects can be large: the hedged version of the BlackRock Euro Bond UCITS Fund is down 1.78% this year, while the unhedged version is down 7.48%.
- Investments are made under the RBI’s Liberalised Remittance Scheme, up to $250,000 a year. Check current TCS rules before investing.
- Bond fund returns do not receive the tax treatment of long-term equity investments. Check how they are taxed in your case.
The bottom line
Bond yields are at their highest in nearly two decades, but the factors pushing them up remain. Most experts favour short-to-intermediate, high-quality funds and buying in stages. Long-duration funds suit investors with a strong view that rates have peaked.
This post is for education only and is not investment advice or a recommendation. Fund data is from the Vested Finance Global Funds screener, as of October 8 and 9, 2026. Past returns do not guarantee future results.