From February 2022 to August 2024, bond investors experienced mixed results across their portfolios due to the Federal Reserve’s aggressive interest rate hikes.
During this period, the benchmark policy rate climbed from a post-COVID-19 low of 0.25% to a peak of 5.5%. The rapid rise in rates had a severe impact on holders of longer-maturity bonds, because higher yields push down the prices of existing bonds. By contrast, investors in short-maturity securities such as Treasury bills earned historically high yields with comparatively low risk.
Since September 2024, the environment has shifted. The Federal Reserve is now firmly in a rate-cutting cycle, and the policy rate has moved down to about 4%. As a result, the investors who once benefited from high yields at the short end of the curve are no longer receiving the same level of income.
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If income remains a priority but you prefer to stay in fixed income rather than take on the market risk of dividend stocks or real estate investment trusts, the main lever left to adjust is credit quality.
“Generally speaking, higher income comes at greater credit risk because investors need to be compensated for the additional credit-risk premium over comparable Treasury bonds, which are virtually risk-free in terms of default,” says Mark Andraos, partner and wealth advisor at Regency Wealth Management.
Bond credit ratings measure how likely an issuer is to repay its obligations in full and on time. Lower ratings signal higher risk, but they also allow lenders to demand higher interest rates. Moving below investment grade means looking beneath the BBB tier, where the probability of default rises sharply.
For example, historical data from S&P Global show that the three-year cumulative default rate is only about 0.9% for BBB-rated issuers, but jumps to 4.2% for BB, 12.4% for B and 45.7% for CCC or lower. Higher income from bonds is never a free lunch. It is a trade-off that requires investors to accept more credit risk at the cost of capital preservation.
Here are seven of the best Fidelity bond funds for steady income, each screened for a 30-day SEC yield of 4% or higher:
| Fund | Expense ratio | 30-day SEC yield |
| Fidelity High Income Fund (ticker: SPHIX) | 0.80% | 6.7% |
| Fidelity Focused High Income Fund (FHIFX) | 0.75% | 5.6% |
| Fidelity Floating Rate High Income Fund (FFRHX) | 0.73% | 7.2% |
| Fidelity New Markets Income Fund (FNMIX) | 0.76% | 5.5% |
| Fidelity Capital & Income Fund (FAGIX) | 0.90% | 4.6% |
| Fidelity Strategic Income Fund (FADMX) | 0.65% | 4.3% |
| Fidelity Short Duration High Income Fund (FSAHX) | 0.73% | 6.3% |
Fidelity High Income Fund (SPHIX)
“The fixed-income markets are one of the few markets that are non-exchange-traded, and thus having experience and relationships can create an advantage,” says Jeffrey Kalapos, chief investment officer at Coastal Bridge Advisors. “Understanding the management team’s investment philosophy, process and past experience is paramount.” This is especially important for active bond funds like SPHIX.
This Fidelity bond fund is managed with a focus on B- and BB-rated high-yield bonds, with the discretion to tactically allocate to CCC-rated bonds. However, SPHIX prioritizes bonds from less cyclical firms with high free cash flow and competent management. After accounting for a 0.8% expense ratio, the fund currently pays out a 6.7% 30-day SEC yield. However, tax efficiency is fairly poor.
Fidelity Focused High Income Fund (FHIFX)
“Understanding the fund’s true purpose and guideline constraints are often overlooked in the diligence process,” Kalapos says. “More strict guidelines can be both positive or negative, depending on the type of exposure you are trying to seek — one potential effect is that it may negatively limit the portfolio management’s investment options.” This is especially true when it comes to credit ratings.
For example, FHIFX’s actively managed mandate invests primarily in the highest-rated segment of the junk bond market. In practice, this translates to an overweight in BB-rated bonds. FHIFX also actively seeks to own high-yield bonds that have a greater potential for being upgraded to investment-grade. The fund charges a 0.75% expense ratio and pays a 5.6% 30-day SEC yield.
Fidelity Floating Rate High Income Fund (FFRHX)
Companies can raise capital in several ways. Some issue common stock or preferred shares, but many rely on corporate bonds. When a company’s creditworthiness is uncertain, that debt is rated below investment-grade. Another option is bank loans, often called senior loans or leveraged loans. These sit higher in the capital structure, which means they are paid before unsecured creditors.
Investors can access senior loans through funds such as FFRHX. The portfolio consists mostly of B- and BB-rated loans from companies with meaningful free cash flow and reasonably strong balance sheets. Many of the loans carry floating rates, so income payments adjust as benchmark rates change up or down. After accounting for a 0.73% expense ratio, FFRHX pays a 7.2% 30-day SEC yield.
Fidelity New Markets Income Fund (FNMIX)
The U.S. government and American corporations are not the only issuers of tradable debt. Governments and companies in international markets raise capital through bonds as well. In particular, emerging-market issuers operate in environments with greater economic volatility, less predictable monetary policy and, in some cases, higher political instability. These factors result in lower credit ratings.
FNMIX provides access to this segment of the international bond market. The fund invests in a wide range of emerging-market issuers, including countries such as Brazil, Colombia, Venezuela, Argentina, Mexico and Ecuador. These issuers offer a significant yield pick-up over their international developed and U.S. market counterparts. FNMIX charges a 0.76% expense ratio and pays a 5.5% 30-day SEC yield.
[Read: 8 Best Emerging-Market ETFs to Buy for 2026]
Fidelity Capital & Income Fund (FAGIX)
FAGIX is another actively managed Fidelity bond fund, but with a broader mandate than traditional high-yield funds. The portfolio managers have discretion to allocate across high-yield bonds, convertible bonds, leveraged loans, preferred shares and even equities. This structure gives the fund more potential upside than a pure high-yield bond portfolio, though it also results in a lower 4.6% 30-day SEC yield.
For bond investors who want a balance between income and return potential, FAGIX can act as a middle ground. The diversified approach has contributed to strong historical performance. Over the past 10 years, FAGIX has delivered a 7.6% annualized total return, outperforming both its benchmark index at 6.1%, and the 5.3% average for the Morningstar high-yield bond category.
Fidelity Strategic Income Fund (FADMX)
FADMX is another diversified multi-sector strategy. Its portfolio managers can allocate across high-yield bonds, U.S. government bonds, emerging-market bonds and developed market bonds, with long-term target weights of 45%, 30%, 15% and 10%. The approach relies on the historically low correlations between these segments and on periodic rebalancing to enhance returns.
FADMX uses a segmented management structure. Specialists oversee each portion of the portfolio, while a lead portfolio manager coordinates the overall tactical allocation. The fund charges a 0.65% expense ratio and has a 4.3% 30-day SEC yield. Although the yield is lower than some single-sector funds, FADMX has outperformed its benchmarks over the trailing three-, five- and 10-year periods.
Fidelity Short Duration High Income Fund (FSAHX)
During the rising-rate environment of 2022, FSAHX held up better than many broad bond funds, declining 6.1%. Its resilience came from its low interest-rate sensitivity. This Fidelity bond fund focuses on short-maturity bonds, which results in a current duration of only 1.7 years. This makes it more suitable for investors with shorter time horizons who want to limit the impact of rate changes.
Despite the shorter maturities, FSAHX still delivers a competitive 6.3% 30-day SEC yield. The higher income comes from taking on credit risk. The fund primarily invests in B- and BB-rated bonds, with the flexibility to opportunistically add CCC-rated securities. While the short duration may appeal to investors seeking stability, the credit profile means it is not an ideal fit for those with a low risk tolerance.
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7 of the Best Fidelity Bond Funds to Buy for Steady Income originally appeared on usnews.com
Update 12/08/25: This story was published at an earlier date and has been updated with new information.
