Bond sell-off puts longer-dated bonds in the spotlight as short-dated credit offers investors a less volatile route to income

•  Long-dated government bond yields have climbed to levels last seen around the global financial crisis, leaving investors to weigh higher income against greater interest-rate volatility

• Short-dated credit has largely avoided the worst of the sell-off, offering attractive income with less sensitivity to movements in government bond yields

• Aberdeen’s Short Dated Enhanced Income Strategy marks its third anniversary with a 6.1% annualised return since launch and approximately 1.6% annualised outperformance over cash – and a 5* Morningstar rating

The current bond market sell-off in long-dated bonds has strengthened the case for investors to look again at short-dated credit, as rising yields force markets to confront the risks of taking on additional duration, says Aberdeen Investments.

The sell-off has exposed a sharp divide between the short and long ends of the market. Aberdeen research shows that in the year-to-date, global short dated credit has delivered a total return of approximately +1.3%, while all-maturity global credit bonds have returned around -1.4%. Thirty-year UK gilts have fallen by approximately -5.5% over the same period.*

Aberdeen says much of this difference comes down to duration. Bonds with a shorter time to maturity are less sensitive to changes in interest rates and government bond yields, leaving them less exposed to the price swings that have affected longer-dated assets.

While higher long-term yields may appear attractive, investors must weigh that additional income against the potential for continued volatility as markets respond to changing expectations for inflation, interest rates and government borrowing.

Mark Munro, Investment Director at Aberdeen Investments and Manager of Aberdeen’s Short Dated Enhanced Income Fund, said:

“The market narrative remains heavily focused on the risks associated with higher government bond yields, but we think investors should also recognise the opportunities that this creates. Today's yield environment is very different from the one investors faced for much of the previous decade.

“Investors do not necessarily need to lend for 20 or 30 years to access attractive income. Short-dated credit, across both sovereign and corporate bonds, allows them to benefit from today’s higher yields while reducing their exposure to the interest-rate volatility affecting longer-dated bonds. And with corporate fundamentals remaining robust, we believe that is an attractive combination.”

Three years of navigating bond market turbulence

This backdrop comes as Aberdeen Investments’ Short Dated Enhanced Income Strategy reaches its three-year anniversary, having navigated the aftermath of the fastest interest-rate hiking cycle in decades, alongside the UK gilt market crisis, regional banking sector stresses, repeated bouts of sovereign bond volatility and major geopolitical shocks including Liberation Day tariffs and conflict in the Middle East.

Over the three-year period since launch, the strategy has delivered a total return of 6.1% per annum, outperforming cash by approximately 1.6% a year and with a volatility of 1.1%**. All while maintaining its focus on generating attractive income through actively managed short-dated fixed income investments.

The anniversary also comes against a backdrop of strong third-party recognition, with the strategy earning 5-star Morningstar recognition during a period characterised by significant market volatility and rapidly changing macroeconomic conditions.

Why short-dated credit now

Investors may understandably be concerned about the prospect of further rate hikes. However, this cycle looks very different from 2022-23, with policy rates already at much higher levels and any additional tightening likely to be more limited. Despite this, markets have already repriced for higher rates, with forward markets implying a US cash rate close to 5% in a year's time.

As bond markets typically adjust before central banks act, cash may not be the answer. Waiting for higher cash rates risks missing the opportunity already created by today's bond valuations. This repricing has pushed yields on 1-3 year credit above 5%, a level seen only around 20% of the time over the past decade***. Historically, similar starting yield levels have been associated with strong subsequent returns and outperformance versus cash, creating a compelling opportunity to lock in elevated income today.

Short-dated credit can also adjust more quickly when yields rise, Aberdeen notes. Approximately a quarter of the SDEI portfolio matures or rolls off each year, providing regular opportunities to reinvest capital. As a result, the benefit of a market repricing can feed into the portfolio’s income more rapidly than it would in a long-duration strategy, where capital may remain tied up in bonds issued at lower yields many years earlier.

With corporate fundamentals remaining robust and all-in credit yields around their highest levels in close to a decade, Aberdeen believes short-dated credit can offer an attractive source of income without requiring investors to take a strong view on the direction of long-term interest rates.

Mark Munro added:

“Markets remain highly sensitive to inflation expectations and central bank policy, but much of the expected rise in interest rates is already reflected in short-dated bond prices. If policy tightening is implemented broadly as markets expect, much of the adjustment at the short end of the curve may already have taken place. Any easing in geopolitical tensions, inflation pressures or expectations for future rate rises could then provide a more supportive backdrop for bonds.

“Short-dated credit also gives us flexibility. With around a quarter of the portfolio rolling off each year, we can reinvest at higher yields relatively quickly. For investors considering whether to lend for several decades or to companies with robust fundamentals for a much shorter period, we believe short-dated credit offers an attractive combination of income, lower volatility and reduced exposure to government bond market swings.”

Ends

*Source: ICE, Bloomberg. Data as at 25 September 2026.
**USD hedged, performance gross of fees. Unlike cash in a bank account, the value of an investment is not guaranteed and can fall as well as rise.
***Source: ICE. Data as at 31 August 2026.

Notes to editors

Discrete annual returns, year ended 31 August 2026, for abrdn SICAV I - Short Dated Enhanced Income Fund:

Discrete annual returns - year ended 31/08

Performance Data: Share Class A Acc USD
Benchmark History: Benchmark - Bloomberg Global Corporate Aggregate (1-3 Yr) Index (Hedged to USD).
Source: Factset. Basis: Total Return, NAV to NAV, net of annual charges, gross Income reinvested, (USD).

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Notes to editors

About Aberdeen Investments:
 

Aberdeen Investments is a specialist asset manager that focuses on areas where we have both strength and scale across public and private markets, including credit, specialist equities and real assets. 
 

Our teams collaborate across regions, asset classes and specialisms, connecting diverse perspectives and working with clients to identify investment opportunities that suit their needs.
 

As at 30 June 2026, Aberdeen Investments managed c.£397.5bn on behalf of clients, including insurance companies, sovereign wealth funds, independent wealth managers, pension funds, platforms, banks and family offices.
 

www.aberdeeninvestments.com
 

About Aberdeen Group
 

Aberdeen is a leading Wealth & Investments group, working to help millions of customers and clients turn their financial goals into reality. As at 30 June 2026, Aberdeen managed and administered c.£579.4bn of client and customer assets across its three core business, interactive investor, Adviser and Investments.
 

www.aberdeenplc.com 
 

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