Why elevated macro uncertainty breeds bond opportunities

Hi, I’m Adam Abbas, Portfolio Manager of the Oakmark Bond Fund and Head of Fixed Income at Harris|Oakmark. As we mark the fund’s five-year anniversary, it’s a natural time to reflect on what we’ve built – and where we see opportunity ahead.

Today’s market is shaped by elevated macro uncertainty – from geopolitics and fiscal imbalances, to shifting monetary policy. These concerns are real, and they deserve thoughtful analysis – but for long-term investors, they create the inefficiencies our value process seeks to exploit. 

Some recent commentary has downplayed the role of fixed income in today’s environment. But we think it is important to zoom out and consider the bigger picture.

The reality is that the starting point for fixed income today is meaningfully better than it’s been in over a decade. Yields are higher, the opportunity cost of waiting is rising, and income is once again a core contributor to total return. In the current environment, it is possible for investors to access meaningful after-inflation adjusted real yields – without the increased default risk that typically accompanies lower credit quality issuers. In a world where uncertainty remains elevated, fixed income offers the potential for steady income, capital preservation, and upside potential from market dislocations. That’s a sharp contrast to the low-yield and low volatility regime investors had grown accustomed to in the years prior to 2022.

Uncertainty isn’t new – and in our view, it’s rarely a reason to sit on the sidelines if you’re a long-term, disciplined value investor. I remember hearing the same doubts in March 2009 on the Lehman bond desk, and again during the European debt crisis in 2011–2012, and in early 2020 with COVID, and most recently around proposed tariffs – what some have called “Liberation Day.” While the verdict is still out on the latest episode, historically, these periods have been strong times to put capital to work.

It is indeed true that in credit, index valuations have returned to pricing in a fairly optimistic outlook. But unlike in the pre-2022 era, today’s higher starting yields – both nominal and real – give fixed income more room to potentially absorb risk and still generate attractive returns.

And more importantly, our opportunity set at Harris|Oakmark isn’t shaped by where benchmarks or index levels trade. It’s driven by the fundamentals of individual securities – often mispriced or overlooked inside highly correlated indices. And the number of opportunities we are seeing at the company level certainly increased against this backdrop.

We find value in companies the market is mispricing – not due to weak fundamentals, but because they’re being caught in broad macro fears or short-term earnings noise. These are businesses quietly doing the right things: reducing leverage, allocating capital wisely, or stepping away from low-return segments. Yet, because they operate in sectors overshadowed by headlines or cyclicality, their bonds are often priced as if none of that discipline exists.

Take, for example, a well-capitalized industrial equipment manufacturer making all the right moves to reduce default risk. Management has improved free cash flow, cut leverage, and focused on long-term value creation – yet that progress is being overshadowed by noise around tariffs or fiscal policy. Or consider a consumer lender that’s materially improved its underwriting, upgraded its technology, and strengthened its balance sheet since the regional banking crisis – yet its bonds still reflect the risk profile of two years ago.

At Harris|Oakmark, we look for those disconnects. We engage with management teams. We invest from the bottom up. And when the market anchors to fear instead of fundamentals, we step in. That’s where conviction comes from – and why we believe many of today’s best opportunities lie beneath the surface of the benchmark.

Uncertainty isn’t what drives action. Prices and value do. However, at Harris|Oakmark, we believe these periods of elevated uncertainty help create more mispricings – and we’ve been acting on them. Recently, we leaned into opportunities across corporate and securitized credit where we believe risk was being overstated.

That approach – grounded in discipline and bottom-up analysis – has guided our positioning not just in recent months, but throughout the five years we’ve been building this platform. And it will continue to guide us going forward.

As I look back on the past five years, I couldn’t be more proud of what we’ve built at Harris|Oakmark. When we launched the Bond Fund, we were entering one of the most aggressive interest rate resets in modern financial history. And through that environment, we stayed disciplined and grounded in our process. Despite the headwinds, we delivered a high single-digit cumulative return for our investors – while the average fund in the Morningstar Core Plus Intermediate peer group hovered around breakeven, and the benchmark produced decidedly negative returns. That outcome wasn’t about avoiding volatility – it was about leaning into opportunity, doing the work, and maintaining a long-term mindset.

We built this fund to thrive in complexity – not to avoid it. And with the team, process, and philosophy we have in place, I’m as optimistic as I’ve ever been about what comes next.