Wells Fargo advises: Move away from cash for 2026 income strategy, but avoid excessive risk.

2026 Bond Market Outlook: Wells Fargo Investment Institute predicts solid income from bonds in 2026, with the 10-year Treasury yield expected to range between 4% and 4.5%, as interest rates and credit spreads remain stable.

Investment Strategy Recommendations: Investors are advised to focus on yield and credit quality, with a preference for investment-grade corporate bonds and securitized assets, while avoiding lower-rated, riskier bonds due to potential economic downturns.

Cash Holdings Advice: With short-term rates declining, investors should reconsider their cash holdings, which have significantly increased, and look for yields in maturities between three to seven years.

Municipal Bonds for High Tax Brackets: Wells Fargo recommends municipal bonds, particularly investment-grade local general obligation bonds and revenue bonds for water, sewer, and electric services, as a favorable option for investors in high tax brackets.