Solid – but not overheated – growth could create fertile ground for carry-focused fixed income strategies in 2026.
The outlook for 2026 suggests that the peak in global inflation is behind us, which should allow central banks to keep accommodative policies in place. This environment, supported by resilient and stable growth, favours risk assets. In an economic context that does not become overheated, a selective approach to bonds that is focused on quality income seems sensible.
The beginning of the year was marked by rising geopolitical risks and doubts about the independence of the Federal Reserve. Although these factors do not challenge the positive risk environment, they reinforce investor interest in tangible and alternative assets, due to declining confidence in traditional institutions. In addition, the artificial intelligence (AI) revolution is transforming industries, while stimulating demand for raw materials and specialised equipment, opening up long-term investment opportunities.
Generating quality income through bonds
In 2026, investment strategies should benefit from the favourable growth environment and limit exposure to political risks. A positive bias towards bonds, particularly those issued by companies with strong balance sheets, therefore appears appropriate. Exposure to high-yield securities through credit default swap (CDS) indices should remain attractive in a high nominal growth world, while additional tier 1 (AT1) and BB bonds, along with collateralised loan obligations (CLOs) should offer quality income with limited default risk.
Strong demand for precious and industrial metals, alongside their status as safe havens, support the positive outlook for this asset class. In light of this, emerging market currencies with attractive yield profiles also offer upside potential. Furthermore, long positions in technology, via convertible bonds offering equity-like returns and providing protection against losses, could be an opportunity to capitalise on the potential of AI while maintaining a controlled risk profile. Last, small-cap earnings have recently bounced back by 8% year-on-year, broadening earnings growth and benefiting convertible bonds.
Jerome Powell's recent statements rule out an imminent rate cut by the Fed but also exclude further hikes. US monetary policy is therefore likely to remain supportive, with some room for cuts towards neutral levels. Given these circumstances, maintaining a positive bias within portfolios in terms of duration remains essential in order to limit spread volatility, highlighting the importance of building more balanced portfolios as far as credit exposure is concerned.
The views and opinions expressed by fund managers (internal or external) may differ from the house view. They are shared for informational purposes and do not constitute investment advice or a recommendation.
