Despite no shortage of challenges and obstacles, returns across fixed income asset classes have been largely positive in 2025, with income levels a major contributing factor.
We see a continuation of the diversification trend seen in 2026. Fixed income investors may be underestimating the risk stemming from US expansionary fiscal policy. We see opportunities in inflation break-evens, and yield curve steepening later in the year. Quality credit becomes a core allocation for fixed income investors, thanks to sound fundamentals and a better risk-return profile compared to Treasuries. European bonds remain a key call for 2026, with a focus on peripheral bonds and investment grade credit, particularly in financials.
This year has seen huge shifts in the macroeconomic and geopolitical landscape. Principles such as free trade, globalisation and central bank independence that have underpinned the global economy for decades are being challenged. Despite this, credit spreads are at all-time tight levels and equity markets at historic highs.