Flash Fixed Income

When government finances deteriorate, how much of that risk should be priced into the borrowing costs of otherwise healthy businesses?

With two-year UST yields at around 4.7%, we think short end yields are offering an attractive potential hedge against both downside growth catalysts and lower oil prices.

Credit assets generally performed well in the first of half of 2026, despite periodic volatility driven by the Iran war and concerns about AI disruption and private credit.

Having initially expected central banks to cut interest rates in 2026, investors now face a hawkish pivot after the European Central Bank (ECB) hiked rates at its June meeting.

UK government bond yields have pushed higher this month as markets have digested a building political crisis, with the prime minister, Sir Keir Starmer, now set to face a Labour Party leadership contest following dire local election results on May 7.

Sharp swings in government and corporate bond markets since the onset of the Middle East conflict pose interesting questions for fixed income investors.

As fixed income investors, our focus is on how the shock ripples through the variables that matter most for bonds: inflation, growth, and how central banks respond.

Market focus has shifted in recent weeks from hyperscaler spending to the threat AI could pose to numerous software-as-a-service (SaaS) businesses.

For global bond investors, predictable central bank activities are an important component of long-term strategy. But the Trump administration’s unprecedented pressure on the Fed, including a criminal probe of Chair Jerome Powell, is driving investor fears about the independence of the world’s most important central bank and the reliability of monetary policy.

It is the nature of financial markets that the trends and risks investors have their eye on at the start of the year are seldom the trends and risks they have their eye on by the end. Below is a selection of charts depicting some key trends we have seen develop in 2025, all of which we believe will have implications for investors heading into 2026.

October brought the first serious bout of volatility in corporate bond markets for some time, with two high-profile US bankruptcies raising fears of a more systemic issue in credit.

France’s chronic government paralysis repeatedly created headlines this month, and fixed income markets are rightly worried about the sustainability of French government borrowing levels. Meanwhile, forecasts of a £50bn blackhole in the UK’s public finances are keeping gilt yields elevated and have made this November’s UK Budget a potential flashpoint.