Fixed Income

US Rates: Neutral nominal duration - we prefer inflation protection while monitoring the Fed transition closely

Why has the enthusiasm for sustainable investing lost its lustre? A lag in performance of sustainable European equities relative to the broader European equity markets over the last three years hasn’t helped. Sector rotation in equities is often blamed for this downturn in returns. .

Late-cycle credit markets rarely announce themselves clearly. Spreads remain tight, income is still available, and risky assets may continue to perform. Yet beneath this apparent stability, the balance is shifting: compensation is thinner, risks are more idiosyncratic, and the margin for error is narrowing.

Impact investments have kept rising over the past decades, reaching $1.6 trillion USD according to the Global Impact Investing Network (GIIN) – that is $ 1.6 trillion USD in assets allocated toward solutions supporting the Sustainable Development Goals.

We maintain a neutral stance on US duration. Uncertainty around the conflict, the path of oil prices, and the Fed reaction function still argue against taking a strong strategic view on nominal Treasuries.

Since the end of February, global credit markets have been driven by the escalation of the US-Iran conflict and rising tensions across the Middle East. While geopolitical risks are not new, the intensity and speed of this episode took markets by surprise.

Since late February, global markets have been shaped by renewed geopolitical tensions in the Middle East, triggering a sharp increase in oil prices and reigniting inflation concerns.

If you ask a fixed income investor to describe the credit cycle, most will readily cite its four familiar phases: Repair, Recovery, Expansion and Downturn. Knowing the terminology is straightforward. The more relevant question is: why does it matter for portfolio outcomes?

Market dynamics continue to be dominated by geopolitical developments and the evolution of the conflict in the Middle East, primarily via its impact on oil prices.

Explore Candriam’s disciplined approach to credit investing. Learn how issuer research, ESG integration and risk visibility help navigate volatility and construct resilient fixed income portfolios.

In a world where investors are constantly looking for more income opportunities and stability, subordinated bonds issued by banks and insurance companies constitute an interesting alternative.

Emerging market debt has treated investors well lately. Hard-currency sovereigns have benefited from high coupon yields, tighter spreads and a few well-timed recoveries, while corporates have followed a similar script — with high yield doing much of the heavy lifting.

We are moving to a neutral stance on US duration this month after our tactical long. While the macro backdrop remains broadly resilient, the balance of risks across the curve has shifted sufficiently to warrant a recalibration of our positioning.

We maintain a neutral strategic stance on US duration and rely on tactical implementation. Growth momentum continues to look resilient rather than fragile, and the labour market is showing signs of stabilising at lower levels rather than accelerating deterioration. Survey data supports this view, and high-frequency growth tracking remains firm, reinforcing our assessment that recession risks are not the central case in the near term.

As it has over the past 2 years, credit remains an asset class of choice for global fixed income investors. The combination of enduringly sound fundamentals, powerful technical forces, and generous yields has rendered credit a rare anchor of stability in a world still wrestling with volatility and policy uncertainty.

We continue to view the labour market as the key determinant for US rates. If employment stabilises, we expect the long end of the curve – particularly maturities beyond ten years – to move higher.

Global credit markets have entered the final quarter of 2025 in remarkably good shape. Corporate fundamentals remain robust: earnings across sectors have generally surprised to the upside, leverage is low, and balance sheets are strong, in contrast to sovereign balance sheets, where leverage remains elevated.

The US economy has entered unknown territory in more ways than one.

Candriam has long been recognised for its leadership in ESG, but our reputation is equally rooted in deep credit expertise — analysing not just issuers, but the entire architecture of financial markets. This perspective is particularly critical in complex areas such as bank capital, where instruments like CoCos play a decisive role.

The global rates landscape is entering a decisive new phase as the long-standing flatness of yield curves gives way to steepness that has not been seen since 2011. The term premium, the additional interest by bondholders investing in longer-dated bonds versus short-term bonds, is back after an absence of many years.

On rates markets, August and the first week of September were marked by a noticeable de-correlation on both sides of the Atlantic. While Euro rates moved sideways, Treasury yields declined significantly, especially at the short end of the curve. This shift and steepening of the curve reflects a weakening labour market, accelerating Fed rate cut expectations.

Yields remain elevated across both U.S. and European markets, offering attractive carry for investors in both Investment Grade (IG) and High Yield (HY).

June proved to be a fraught month for market participants—marked not only by record-breaking heatwaves, but also by a barrage of geopolitical and macroeconomic developments that tested investor nerves.

May and the first two weeks of June saw a good performance from risk assets, while rates assets underperformed.

You want to talk about euro swap spreads versus US swap spreads? We watch that, too. But to be honest, that graph is one of the last things we look at when managing euro fixed income aggregate portfolios. So if you want to see it, you’ll have to read all the rest of this page first.