United StatesComing into 2026, our central thesis was one of continued resilience in global fixed income markets. The path so far in 2026, however, has been more disruptive than our base case. Conflict in the Middle East has driven up the price of oil and increased inflation, destabilising interest rates. While credit spreads have remained remarkably resilient and stay at cycle tights, long-end core yields have risen.
In April, US consumer price inflation (CPI) rose to its highest since 2023, with inflationary pressure also visible in shelter, food and airfares. Rates futures are now assigning some probability that interest rates will go up, not down, and real wages have turned negative. The outlook for US interest rates is unusually difficult to judge, and Fed credibility will be tested in real time.
In this mid-year outlook, we share our perspectives on each of the main sub-asset classes that we focus on within fixed income and identify key watch items for the second half of 2026.