Market Pulse: Global Fixed Income Update
January 2026, In the Loop
December was a quiet month for markets with preexisting trends mostly remaining intact. With few changes in the fundamental global economic and financial landscape, major investment theses, including the call for higher U.S. Treasury yields also remained in place. That said, upgrades to the outlook for asset-backed securities (ABS) and emerging markets (EM) dollar-denominated sovereign debt (EMD) stood out given the fairly valued view of the other existing fixed income sectors from our investment staff.
Analysis and Conviction Updates
Global Economics
- Little has changed in the economic picture since December’s Policy Week. Global economic growth is modest with expectations for improvement driven primarily by continued relative strength in the U.S. Though CPI data in the U.S. remain noisy, global inflation continues to moderate. U.S. Economist Blerina Uruci has held a higher-than-consensus view on inflation in the first half of 2026. However, the recent lower-than-expected December CPI data release presents some challenges to that thesis. Should she revise her inflation forecast downward, she sees the potential for more cuts from the Federal Reserve than the two that the market currently expects.
Global Interest Rates and Currency Strategy (GIRCS)
- Similarly, there was little change in the outlook of our GIRCS committee given the quiet December market backdrop. The committee continued its stance of an underweight to U.S. duration with higher conviction that intermediate- and long-term Treasury yields may see upward pressure and that the Treasury curve will steepen. The GIRCS committee’s view remains different than that of the broader market, which seems to expect more range-bound trading. Market momentum has seemingly turned more in favor of our view thanks to a variety of factors including labor data that has stabilized more recently.
Sector Strategy
- Our Sector Strategy Advisory Group’s recommendation last month to remain bullish on credit risk was positive once again as quiet markets and seasonal strength helped drive spreads tighter into year-end. Rising conviction in asset-backed securities (ABS) and EMD helped keep the overall outlook for risk constructive. The upgrade to ABS was based on attractive relative value, strong technicals, and improving momentum with a preference for more liquid portions of the market. Meanwhile, positive developments across Latin America, such as the upcoming election cycle in the region, may provide the catalysts necessary for EMD to perform well according to our EM team.
Bottom Line: Leveraging over 50 years of global fixed income experience, deep sector specialization, and a fundamentally driven, collaborative research culture, we maintain a differentiated view of rising U.S. Treasury yields while selectively increasing conviction in ABS and EMD as targeted sources of potential alpha generation for our clients.
Jan 2026
Ahead of the Curve
Article
Yields poised to increase as global competition for capital endures
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.
All investments are subject to market risk, including the possible loss of principal. Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall.
Conflicts of Interest risk – The investment manager's obligations to a portfolio may potentially conflict with its obligations to other investment portfolios it manages.
Counterparty risk – Counterparty risk may materialise if an entity with which the portfolio does business becomes unwilling or unable to meet its obligations to the portfolio.
Custody risk – In the event that the depositary and/or custodian becomes insolvent or otherwise fails, there may be a risk of loss or delay in return of certain portfolio's assets.
Cybersecurity risk – The portfolio may be subject to operational and information security risks resulting from breaches in cybersecurity of the digital information systems of the portfolio or its third-party service providers.
ESG risk – ESG integration as well as events may result in a material negative impact on the value of an investment and performance of the portfolio.
Investment portfolio risk – Investing in portfolios involves certain risks an investor would not face if investing in markets directly.
Inflation risk – Inflation may erode the value of the portfolio and its investments in real terms.
Market risk – Market risk may subject the portfolio to experience losses caused by unexpected changes in a wide variety of factors.
Market Liquidity risk – In extreme market conditions it may be difficult to sell the portfolio's securities and it may not be possible to redeem at short notice.
Operational risk – Operational risk may cause losses as a result of incidents caused by people, systems, and/or processes.
Sustainability risk – Portfolios that seek to promote environmental and/or social characteristics may not or only partially succeed in doing so.
Actual outcomes may differ materially from any forward-looking statements made. The statements made are as of December 2025, are those of the author, and are subject to change, and T. Rowe Price assumes no duty to and does not undertake to update forward-looking statements. Other T. Rowe Price associates may have different views.
Important Information
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a guarantee or a reliable indicator of future results. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.
Australia—Issued by T. Rowe Price Australia Limited (ABN: 13 620 668 895 and AFSL: 503741), Level 28, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000, Australia. For Wholesale Clients only.
Canada—Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to non-individual Accredited Investors and non-individual Permitted Clients as defined under National Instrument 45-106 and National Instrument 31-103, respectively. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services.
EEA—Unless indicated otherwise this material is issued and approved by T. Rowe Price (Luxembourg) Management S.à r.l. 35 Boulevard du Prince Henri L-1724 Luxembourg which is authorised and regulated by the Luxembourg Commission de Surveillance du Secteur Financier. For Professional Clients only.
New Zealand— Issued by T. Rowe Price Australia Limited (ABN: 13 620 668 895 and AFSL: 503741), Level 28, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000, Australia. No Interests are offered to the public. Accordingly, the Interests may not, directly or indirectly, be offered, sold or delivered in New Zealand, nor may any offering document or advertisement in relation to any offer of the Interests be distributed in New Zealand, other than in circumstances where there is no contravention of the Financial Markets Conduct Act 2013.
Switzerland—Issued in Switzerland by T. Rowe Price (Switzerland) GmbH, Talstrasse 65, 6th Floor, 8001 Zurich, Switzerland. For Qualified Investors only.
UK—This material is issued and approved by T. Rowe Price International Ltd, Warwick Court, 5 Paternoster Square, London EC4M 7DX which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.
© 2026 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, the Bighorn Sheep design, and related indicators (https://www.troweprice.com/en/intellectual-property) are trademarks of T. Rowe Price Group, Inc. All other trademarks are the property of their respective owners.
- 202601-5146520