Fixed income

Foreign exchange markets have taken centre stage again in recent weeks. President Trump’s apparent indifference to the relatively steep dollar depreciation trend of late has raised a few eyebrows and added fuel to the dollar fire.

2026 is already shaping up to be another volatile year for geopolitics, economies and markets. But one pocket stands out as a key beneficiary of the present backdrop.

After a week that saw 10-year Japanese government bonds (JGBs) hit yields not seen since the late 1990’s (and record highs for 30-year and 40-year maturities), alongside one of the most interesting Davos conferences in years, which was held in the shadow of the latest push by President Trump to “acquire” Greenland, it is helpful to take stock of where this leaves the global geopolitical landscape and financial markets.

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.

With spreads well below long term averages and government bond curves pricing in what central banks are likely to do in the next few quarters, opportunities for capital gains through spread compression or sustained rallies in government bonds appear to be limited.

Historically, one of the key sources of stability in European ABS has been ratings. The market has long seen upgrades consistently outnumber downgrades, even during periods of stress, most recently during Covid-19.