The December 2025 inflation reading came in at 2.7% year over year and then 2.4% in January and February 2026. That’s above the Federal Reserve’s target, but a far cry from the 9.0% peak we saw in mid-2022—and let’s hope it stays that way. The past decade took fixed-income investors on a wild ride, from years of low inflation and rock-bottom yields to a sharp inflationary spike and the most aggressive rate-hiking cycle in a generation. So, how did bond funds actually fare over those 10 years? They’re supposed to offer a relatively safe haven from market volatility. But did they protect investors against inflation?
To find out, we looked at 10-year cumulative real returns for US taxable-bond mutual funds and exchange-traded funds through December 2025, adjusting for inflation using the Consumer Price Index. For each fund, we selected the best-performing share class and grouped results into five buckets, from “real loss” (down more than 10%) to “strong real gain” (up more than 25%).
The Big Picture: Not as Bad as Feared
Across the taxable fixed-income universe, the results were decent. About 70% of funds managed to at least keep up with inflation, with roughly a fifth generating cumulative real returns north of 25%. About 30% failed to keep pace, with 3% suffering severe real losses. Things get more interesting when you break the funds into Morningstar Categories.
Credit Helped, Duration Hurt
The clearest pattern: Credit exposure paid off, while duration often worked against investors. High-yield funds stand out. Nearly 80% delivered strong real gains. Fidelity Capital & Income FAGIX posted a 56% cumulative real return; Vanguard High-Yield Corporate VWEHX and T. Rowe Price High Yield PRHYX each cleared 25%. Bank loans told a similar story; Fidelity Floating Rate High Income FFRHX and T. Rowe Price Floating Rate PRFRX landed in the strong-gain bucket. Multisector bond funds also fared well. Pimco Income PONAX, one of the largest bond funds in the country, delivered a 20% real gain. Loomis Sayles Strategic Income NEFZX and Pimco Diversified Income PDVAX each topped 28%.
Emerging-market debt performed better than many might assume. Fidelity New Markets Income FNMIX posted a 15% real return, and most funds in the category were in double-digit territory.
Government-focused strategies were a mixed bag. Short government funds saw the majority fail to keep pace with inflation. Vanguard Short-Term Federal VSGDX lost more than 11% in real terms. Intermediate-government funds were a relatively bright spot in this group; more than two-thirds managed to keep up with inflation. But long government bonds were decidedly bad; only 11% managed to keep up with inflation.
Mortgage-backed securities disappointed, too. Vanguard GNMA VFIJX lost nearly 15% of its purchasing power; American Funds Mortgage MFAEX ended the decade down more than 11%. Rate volatility and negative convexity repeatedly punished the sector. In the intermediate core bond category, Vanguard Total Bond Market Index VBTLX lost nearly 11% in real terms, while JPMorgan Core Bond PGBOX managed a modest positive real return.
TIPS Did Their Job
Inflation-protected bond funds largely delivered what they promised. About three-fourths preserved purchasing power, clustering in the 0%–10% real return range. Vanguard Inflation-Protected Securities VAIPX was essentially flat in real terms. For those who wanted inflation protection without credit risk, Treasury Inflation-Protected Securities did their job.
The Uncomfortable Lesson
The past decade wasn’t uniformly bad for bond investors, but it exposed a hard truth: “Safe” and “safe in real terms” are not the same thing. Investors who reached for credit through high-yield, bank loans, or flexible multisector strategies generally fared better.
This article first appeared in the February 2026 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.