Macroeconomics

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.

Explore the Global Credit Outlook 2026: A concise overview of key trends in global credit markets, from macroeconomic shifts and corporate fundamentals to AI-driven investments and market opportunities. Gain insights to navigate the year ahead effectively.

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.

As we approach 2026, Fixed Income markets are shaped by weaker fundamentals, though lower uncertainty may reduce the likelihood of a catastrophic decline. That said, volatility will remain a defining feature. We believe the year ahead holds great potential for active managers who remain steady at the wheel: cautious but nimble.

In a K-shaped economy, high-income earners and large corporations thrive while low-income groups and small businesses struggle. This divergence challenges the Fed, as its policy decisions traditionally rely on GDP, unemployment rates, and inflation. However, K-shaped dynamics are often hidden behind these aggregate measures.

Amid tariffs, bankruptcies, and uncertainty, credit fundamentals remain strong. Elevated yields and solid corporate balance sheets favour income-focused fixed income strategies over government bonds, even as volatility persists.

As we begin the final stretch of 2025, market conditions appear challenging. Inflation remains sticky across a range of economies, preventing major central banks from enacting rapid rate cuts to support GDP growth.

Amidst an economic data blackout caused by the US government shutdown, markets received a bit of positive news on Friday with the release of the US CPI report which showed consumer prices in September increased at a slower pace than expected.

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.

The labour market in the UK continues to cool off along the lines of what the Bank of England (BoE) expects. Yesterday, the Office for National Statistics (ONS), released its monthly labour market data report, highlighting a rise in the unemployment rate and a reduction in some wage inflation measures.

Following years of underperformance, emerging market equities are leading global markets in 2025 to date, driven by a softer US dollar, policy reforms, and renewed investor confidence. With valuations still discounted and structural tailwinds in place, this rally signals a potential long-term shift in global equity dynamics.

France is in the news again. Prime Minister Lecornu became the latest casualty of the French politics saga that began just over a year ago when president Macron called a surprise early election.