Flash Fixed Income

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.

With the Fed’s stance suggesting it is prioritising growth over sticky inflation risks, volatility in longer dated bonds is likely to persist and the case for increasing duration in fixed income is not compelling.

The Trump administration’s immigration policy leaves the US labour market at a pivotal juncture.

Softer US economic data means the pressures on UST yields now look more balanced, but headlines around President Trump’s pick for the next Fed chair are just one reason investors should expect rates volatility to continue.

The question for investors now is how much of the macro risk remains, and how well that risk is being reflected in asset valuations.

After a chaotic week in global markets following the tariffs announced by President Trump on April 2, at time of writing (April 10) investors are left to contemplate 125% tariffs on China, a baseline 10% on the rest of the world, 25% on auto imports and a 90-day pause on more punitive rates.

The incoming German government’s removal of the country’s infamous “debt brake” is a serious pivot for the typically fiscally conservative country, and one that we think highlights the value on offer in European assets.