Triple whammy threat lifts fixed income’s appeal: Kapstream

Binaya Dahal

Journalist

21 May 2026

Rising interest rates, equity market volatility, and stretched market valuations have boosted the appeal of fixed income, with investors increasingly seeing it as an active source of returns rather than just a passive diversifier, according to absolute return specialist Kapstream.

The shift comes as credit markets confront what the Financial Stability Board (FSB) has dubbed an unprecedented “triple whammy” of rising borrowing costs, demand destruction weighing on growth, and a surge in supply fuelled by record AI-driven bond issuance.

Kapstream managing director & portfolio manager Dylan Bourke said the market is seeing a clear evolution in how investors think about fixed income.

“It’s no longer just about balancing equity risk but generating reliable returns in its own right,” Bourke said.  “As macro uncertainty and equity market volatility persist, investors are increasingly focused on portfolio resilience, not just returns, and the ‘sleep at night’ factor is an increasingly important consideration in capital allocation.”

He added that investment decisions are becoming more selective as investors respond to higher rates and ongoing volatility in both equity and credit markets.

“In this kind of market, broad exposure becomes less effective – it’s about being disciplined, focusing on quality and actively managing risk,” Bourke said. “Just as importantly, having a global view allows investors to access a wider opportunity set and avoid being overly exposed to any one market.”

Against this backdrop, the firm achieved a record quarterly inflow of over $490 million in the first quarter of 2026, with its Absolute Return Income Plus Fund surpassing $1billion in funds under management.

Kapstream managing director and portfolio manager Daniel Siluk said the inflows reflected a structural shift in how investors are approaching fixed income allocation.

“In an environment where volatility has become a constant, there is a clear shift toward strategies that can deliver consistent income, downside protection, and capital preservation,” Siluk said.

“Investors are not stepping back from markets, rather they are becoming more deliberate in how they allocate capital.”