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.
Yields poised to increase as global competition for capital endures
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