What’s Ahead for Fixed Income in 2026?

We invite you to listen to Erin Spalsbury, Head of Investment Grade at Insight Investment, as she shares her expectations for 2026 and select areas worth watching. In short, Insight is focused on managing risk while seeking consistent income and long-term value. 

Transcript

SPEAKER_00 0:00

Welcome to the Access to Alpha podcast series from Advisors Asset Management, where we provide exclusive market insights and timely commentary from our portfolio managers and strategic partners. AAM has been committed to delivering innovative, research-driven solutions that help investors navigate complex markets and build more resilient portfolios. We invite you to hear these insights now.

SPEAKER_01 0:29

Hello, my name is Aaron Spawsberry with Insight Investment. It's February 27, 2026, and I'm pleased to join you on the AAM Access to Alpha Podcast. In this update, we'll briefly cover what happened in markets at the end of 2025, how we are positioned, and what we are watching as we move into the new year. First, let's start with what happened in markets. The biggest story fourth quarter was a shift in U.S. interest rate policy. The Federal Reserve lowered interest rates twice, bringing rates to a level that is more supportive of economic growth, though we are seeing increasing dissension among the FOMC members. The two cuts reflected easing inflation and a job market that has begun to cool gradually. There were also some unusual political events. A lengthy US government shutdown delayed several economic reports, making inflation data temporarily harder to interpret. Even so, the broader trend showed inflation easing, which is a positive development for consumer and bond markets alike. Now economic growth surprised to the upside, driven largely by consumer spending. Businesses also increased investment, particularly in technology and artificial intelligence, and we expect AI-related capital expenditures to remain an important support to U.S. growth going forward. From an investment perspective, global stock markets performed well, though U.S. stocks lagged some international markets. Bond markets delivered steady returns with modest interest rate movements and very stable credit conditions. Now looking ahead to 2026, we expect the U.S. economy to continue growing in 2026, though at a more moderate pace. While some areas, such as manufacturing, remain under pressure, investment linked to technology and infrastructure should help support growth. The Federal Reserve is likely to remain cautious, focused on maintaining economic stability, balancing softer inflation employment data with inflation considerations. Inflation risk may be uneven in the near term as tariff headlines post-Supreme Court's invalidation of some of the president's tariffs may renew fear, but underlying inflation trends, particularly in areas of rents, continue to show improvement. Corporate fundamentals remain solid, but we expect increased borrowing related to AI, CapEx, and MA activity. While this could lead to some market volatility, it may also create attractive opportunities to add risk for active managers. For income-focused investors, investment grade bonds continue to offer attractive yields compared to cash, particularly as rates are expected to continue to go down. High yield securities also offer attractive yields, particularly in relation to their relatively low current default risks. We remain focused on managing risk carefully while seeking consistent income and long-term value for our investors. Thank you very much.

SPEAKER_00 3:46

Thank you for joining us on this edition of AAM's Access to Alpha. For more information, please reach out to a financial professional or visit our website at AAMLive.com.