According to CNBC, income investors may need to rethink their fixed-income strategy now that Kevin Warsh is leading the Federal Reserve, as he has called for a "regime change" at the central bank, created five task forces to review its operations, and reduced guidance on future rate moves. The shift comes as the 30-year Treasury yield rose above 5.33% on Tuesday, a 19-year high, while the government deficit widened to $432.3 billion in July, the largest monthly shortfall since March 2021, and inflation remained above the Fed's 2% target.

Luis Alvarado, co-head of global fixed income strategy at Wells Fargo, said investors need to adjust to a "new fixed-income regime" and be selective as the market absorbs the Fed's communication changes, the ballooning deficit and a wave of new debt issuance tied to artificial intelligence spending. He favors the one- to five-year part of the curve, investment-grade corporates and mortgage-backed securities, and said active investors can look for opportunities in sectors that benefit from the AI buildout. Matthew Wrzesniewsky, head of fixed income client portfolio management at Vanguard, said the market can adapt to the Fed's new style but may see volatility as investors seek more explanation for the shift. He is staying in the intermediate part of the curve, avoiding the long end, and focusing on high-quality bonds, including investment-grade corporates, financials and agency mortgage-backed securities.

BlackRock's Rick Rieder said in July that he does not expect more market volatility from the new Fed regime and believes investors should focus on the income bonds now provide. He said real rates are at their highest level in two decades and sees opportunities in non-agency mortgages, commercial mortgage-backed securities and agency mortgage-backed securities. Rieder, who also manages the iShares Flexible Income Active ETF (BINC), said he is also diversifying into European credit.