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Key takeaways

Market insights at a glance

In 2026, global fixed-income markets should benefit from improving growth, subdued inflation and reduced uncertainty around tariffs. Inflation is broadly at target and central banks overall are nearing rate-cut cycle ends. We currently favor high-quality spread sectors for building consistent income and are positioned to take advantage of credit opportunities in AI-related issuance, M&A activity, commercial MBS and CLOs.

This quarterly update is intended to aggregate the Firm’s current overall views and present an at-a-glance dashboard covering the following:

  • Growth: US growth should stay at or above trend, supported by rate cuts, fiscal stimulus and real wage gains.
  • Inflation: Global inflation continues trending lower, remaining contained across most developed market (DM) economies.
  • Rates: Major central banks have eased policy on disinflation and softer labor markets; the Fed cut 75 bps and the ECB lowered rates to 2%, supporting risk assets.
  • Monetary Policy: Further Fed rate cuts are dependent on labor and inflation data. Additional BoE rate cuts are expected, while the BoJ tightens as real rates remain negative.
  • Credit Markets: Credit spreads are tight but supported by strong corporate and household fundamentals, justifying positioning in spread sectors for consistent income.
  • Labor Markets: US unemployment has risen, but reflects new entrants and re-entrants rather than layoffs; labor supply remains tight due to flat migration.

Fixed-Income Overview and Outlook: Growth, Disinflation and Easing Support Risk Assets

The global fixed-income landscape in 2026 is one of improving growth, continued disinflation and central bank easing that has reduced recession fears while supporting risk assets. Major central banks including the Fed, ECB and BoE have cut rates in response to softening labor markets and declining inflation. Inflation is trending toward central bank targets globally, though the US may see short-term upward pressure from tariff-related costs offset by ongoing services disinflation.

Looking ahead, we expect US yields to remain range-bound with steeper curves, while front-end yields drift modestly lower. Our investment focus centers seeking to generate consistent and reliable income through high-quality spread sectors despite tight valuations that are supported by strong corporate and household fundamentals. Significant opportunities exist in AI-driven capital raising, where high-quality issuers will tap public markets for speed of execution, alongside selective exposure to elevated M&A activity, CLO tranches and improving commercial real estate. EM local rates remain attractive given supportive real yields and central bank coordination.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Fixed-income securities involve interest rate, credit, inflation and reinvestment risks and possible loss of principal. As interest rates rise, the value of fixed income securities falls.  Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

Active management does not ensure gains or protect against market declines.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

Commodities and currencies contain heightened risks that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

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