Schwab’s Hidden Income Playbook: Three Overlooked Ways to Lock In 5-7% Yields Now
While stock market headlines obsess over AI chip cycles and mega-cap volatility, a quieter opportunity has been compounding in the fixed income world — one that Schwab’s top income strategist says long-term investors cannot afford to ignore. With the 10-year Treasury yield stubbornly anchored between 4% and 4.5%, Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research, sees three distinct income pockets offering attractive absolute yields that he believes won’t last at these levels indefinitely.
The first opportunity sits in investment-grade corporate bonds, which are currently yielding an average of around 5%. At first glance, tight credit spreads — meaning the yield advantage over Treasurys is historically low — might give cautious investors pause. But Martin argues the tight spreads are a feature, not a warning sign: corporations are entering the second half of 2026 with strong profit growth and healthy balance sheets. “That low risk premium isn’t necessarily scaring us away,” he told CNBC. “We are focusing more on the absolute yields and the income you can earn.” For patient investors who remember the near-zero yield environment of 2020-2021, 5% from high-quality issuers represents a generational reset worth capturing. A diversified basket of investment-grade ETFs remains the most accessible vehicle for most individual investors.
The second idea is a modest tilt toward high-yield bonds — specifically, raising allocation by one to two percentage points beyond what a typical balanced portfolio holds. Martin acknowledges the default risk but points to a structural shift in the Bloomberg U.S. Corporate High Yield Index: higher-rated credits (BB-rated bonds) now make up a meaningfully larger share of the index than a decade ago, improving the overall quality floor of the asset class. ETFs like the Schwab High Yield Bond ETF (SCYB) currently carry a 30-day yield of 6.88% with a rock-bottom 0.03% expense ratio, while the iShares Broad USD High Yield Corporate Bond ETF (USHY) offers a 6.96% 30-day yield with a 0.08% expense ratio — thin enough that the income isn’t being quietly eroded by fees.
The third and most overlooked idea is preferred securities, where yields of roughly 6% come bundled with a meaningful tax advantage: most preferred dividends are qualified, meaning they’re taxed at rates of 0%, 15%, or 20% rather than ordinary income rates. For investors in higher tax brackets, the after-tax yield on preferreds can rival or exceed the pre-tax yield on comparable bonds. The iShares Preferred and Income Securities ETF (PFF) carries a 6.32% 30-day yield, while the Invesco Preferred ETF (PGX) offers 6.33%. Martin also notes that preferred securities, despite their long or perpetual maturities, tend to track credit markets more closely than duration — making them less sensitive to rising long-term Treasury rates than investors typically assume.
The takeaway for long-term investors is structural: for the first time in over a decade, fixed income markets are paying investors meaningfully for taking on credit risk, and the current environment may represent the last window before rate normalization compresses those yields. Martin warns that the Fed’s increasingly hawkish posture under Kevin Warsh could keep long rates elevated — or push them higher — making extended duration in Treasurys the one area to avoid. But across investment-grade corporates, quality high-yield, and preferred securities, a thoughtfully constructed income sleeve of 5% to 7% yield now functions as a compounding anchor for a diversified long-term portfolio — something that simply wasn’t available for most of the past fifteen years.
