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Today’s markets move fast. To keep you up to speed each week, Andrzej Skiba, CFA, Head of BlueBay U.S. Fixed Income at RBC Global Asset Management, and members of his investment team will deliver forward looking market commentary and insights into what’s driving fixed income markets over the coming week.
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A year of high returns or high risks? Fixed income markets look to navigate 2026’s key challenges.In the latest edition of The Weekly Fix, Andrzej Skiba, BlueBay Head of U.S. Fixed Income at RBC GAM, explores a strong fixed income outlook for the new year, driven by carry income and economic momentum. However, the year also brings critical questions about monetary policy, the AI-driven capital wave, and heavy credit issuance.High single-digit returns may be achievable, supported by carry income and projected economic growth.Inflation remains above target, and potential rate cuts could hinge on changes at the Fed.Credit markets may contend with heavy issuance, posing questions about demand and spread levels.
Amid high-short term rates and diverging Fed opinions, investors have turned to money market funds, waiting for clarity on the economic outlook.In this week’s episode, Laurie Mount, Portfolio Manager with RBC’s BlueBay U.S. Fixed Income team, highlights key trends shaping cash management strategies:The Fed lowered the fed funds rate by 25 basis points to 3.50–3.75%, with varied perspectives on the pace of rate adjustments.Money market assets surpassed $8 trillion, fueled by elevated short-term rates and cautious investor sentiment.Looking ahead, 2026 may bring key labor market developments critical to inflation, growth, and further potential Fed cuts.
Is the AI boom testing market limits, or uncovering new opportunities in fixed income for 2026?Anne Greenwood, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, explores the outlook for U.S. fixed income markets in 2026, focusing on Federal Reserve policy, the credit cycle, and the impact of surging AI-driven debt issuance.We expect a hawkish rate cut to close 2025, signaling a dovish path ahead, with more cuts expected in 2026 as U.S. growth reaccelerates.Despite tight spreads, stronger credit quality and rising volatility create opportunities for idiosyncratic spread compression trades.Record AI-related debt issuance may lead to short-term dislocations, but diversified funding channels and sustainable growth in AI point to resilience.
Mindy Gudmundson, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, explores how the longest-ever government shutdown has led to a data backlog, intensifying bond market volatility and uncertainty surrounding December’s FOMC rate decision.The 43-day government shutdown delayed critical economic data releases, distorting analysis and increasing market volatility as investors navigate incomplete information.U.S. Treasury yields experienced sharp movements, closing above 4.05%, as markets priced in a potential Federal Reserve rate cut in December.Investor tensions remain elevated amid rate-cut speculation, stock-market instability, and persistent macroeconomic ambiguity, driving interest in fixed-income securities.
With more volatility potentially on the horizon, we believe US High Yield bonds can provide a ‘port in the storm’. Tim Leary, Senior Portfolio Manager on RBC GAM’s BlueBay U.S. Fixed Income team, explains how US High Yield (HY) bonds have continued to stand out as a reliable option for generating income while managing rate risk during periods of market uncertainty.The US HY index currently provides an Option Adjusted Spread (OAS) of 307 bps with a duration of just over 3 years, widening 14 bps this year despite a 7% return.Compared to US Investment Grade (IG) corporates, which yield 83 bps with a 6.4-year duration, HY bonds have offered higher income potential with notably lower interest rate exposure.With economic data releases expected to drive rate volatility, well-rated HY bonds have continued to deliver steady interest income for investors managing through changing conditions.
Big Tech is reshaping the bond market. Are investors ready for Silicon Valley’s mega issuances?Neil Sun, Portfolio Manager on the BlueBay U.S. Fixed Income team, discusses a tectonic shift in Silicon Valley’s funding strategy. Once cash-rich with pristine balance sheets, major tech companies are now tapping the investment-grade bond market to finance their soaring AI-related capital expenditures.Silicon Valley's debt strategy shift, including $75bn in recent issuances, shows tech giants are prioritizing debt over equity due to tight spreads and tax advantages.Multi-tranche deals across maturities, from 5 to 50 years, are catering to robust demand from insurance and pension funds seeking durable and high-rated bonds.For investors, the short-term market impact may feel bumpy with wider spreads, but this creates valuable opportunities to grab highly rated mega-cap bonds at more attractive valuations.
Divided Fed, uncertain future: Powell’s cautious tone raises questions about policy shifts ahead.Laurie Mount, Portfolio Manager with RBC GAM’s BlueBay US Fixed Income team, highlights the Federal Reserve's recent rate cut and its impact on cash strategies amid ongoing economic uncertainties.The Fed lowered the fed funds rate by 25 basis points to 3.75–4.00%, while signaling caution regarding December cuts due to labor market risks and committee divisions over inflation concerns.Fed Chair Powell warned against assuming another rate cut soon, citing a lack of data due to the government shutdown, which has already led markets to cut December rate cut predictions significantly.In response, our team is prioritizing floating-rate securities and short-term fixed-rate assets under one year, vigilantly analyzing Fed communications and economic data to adapt to evolving conditions.
Systemic risk, or just unusual events? Recent market turbulence leaves some questions about how long high valuations and tight spreads will continue.Anne Greenwood, Institutional Portfolio Manager on RBC BlueBay’s US Fixed Income team, discusses the current market landscape and opportunities for active managers.Equities at record highs and tight credit spreads indicate market resilience, despite recent jitters.Lower-quality high-yield bonds and leverage loans require caution due to deteriorating credit metrics and increased default rates.Active managers may be able to capitalize on volatility by providing liquidity and generating strong risk-adjusted returns in fundamentally stable companies.
Credit cycle deterioration? Not so fast- new earnings reports from the banking sector ease fears of financially stretched consumers and companies.John Guarnera, Senior Corporate Analyst on RBC BlueBay’s US Fixed Income Team, explores the latest data from US banks and an outlook on recent credit market developments.Third-quarter earnings from major US banks revealed stable asset quality and improved credit metrics.Banks' balance sheets remain robust, with high capital levels and strong liquidity, supporting their ability to manage potential risks.Consumer and commercial credit trends show improvement, with delinquency metrics stabilizing across prime and subprime markets.
US High Yield continues to perform well this quarter- but geopolitical volatility demands strategic positioning.In this edition of #TheWeeklyFix, Charlie Whinery, Portfolio Manager on RBC BlueBay’s US Fixed Income Team, breaks down Q3's strong performance and how his team is navigating current market dynamics.US HY delivered solid 2.4% returns in Q3 with robust $140B issuance, low leverage levels, and healthy interest coverage ratios well above historical norms. Geopolitical risks create uncertainty - Trump's tariff threats on Chinese goods sparked volatility, making front-end positioning a potential strategic advantage.
Amid a shifting market landscape, fixed income strategies are evolving to uncovervalue in key sectors.Andrzej Skiba, Head of BlueBay U.S. Fixed Income at RBC GAM, shares how his team is navigating today’s market dynamics while seeking to position for strong returns in 2026.Favoring curve steepeners for U.S. interest rate exposure, with resilience expected unless inflation drops significantly or fiscal deficits shrink unexpectedly.Generic corporate credit spreads remain unappealing, prompting a focus on idiosyncratic opportunities in sectors like California utilities, chip manufacturing, and US housing.We anticipate high single-digit returns in investment grade and high yield fixed income, supported by multiple rate cuts and U.S. growth above 2%.
New GDP data shows economic growth, but labor market and political risks keep markets on edge.Mindy Gudmundson, Institutional Portfolio Manager with RBC BlueBay’s US Fixed Income team, breaks down the latest economic data and key developments shaping markets.Second-quarter GDP revised to 3.8%, driven by strong consumer spending, while jobless claims fell, easing labor market concerns.This week’s labor market data will be critical in shaping expectations for Federal Reserve rate cuts.A potential government shutdown could delay key economic data releases but is unlikely to significantly impact the broader economy.
The Fed’s rate cut is in, just as the market expected – what’s next for the future of monetary policy? Laurie Mount, Portfolio Manager with RBC BlueBay’s U.S. Fixed Income team, unpacks the Federal Reserve’s latest rate cut, economic projections, and what it all means for investors.The Fed cut rates by 25 basis points, lowering the target range to 4.00–4.25%, with projections showing stronger growth, higher inflation, and lower unemployment through 2026–27.Diverging views among FOMC members reveal uncertainty, with projections ranging from no more cuts to a 100-basis point reduction by year-end 2025.Chair Powell described the cut as a risk management move, emphasizing a data-dependent approach amid shifting risks to labor markets and inflation.
Can Fed policy ease the housing affordability crisis?Teri Savage, Senior Mortgage Trader with RBC BlueBay’s Fixed Income team, explores the pressures on the U.S. housing market and the potential impact of upcoming policy changes.Home prices continue to outpace income growth, while 30-year mortgage rates remain stubbornly above 6%, pushing affordability to record lows.The Federal Reserve is expected to cut the Fed funds rate, which could drive down Treasury yields and, in turn, lower mortgage rates to help ease affordability pressures.Mortgage investors should remain flexible and closely monitor policy developments, as the administration prioritizes lowering rates to address housing market challenges.Understand how these dynamics could shape the housing market and investment strategies.
Senior portfolio manager Tim Leary discusses how weaker job growth and strong bond market activity, coupled with tight spreads, support expectations for a September rate cut and continued favorable conditions for fixed-income markets.Weaker job data and key events like Jackson Hole and August payrolls pave the way for a September rate cut. Strong technicals in the US bond markets persist, with significant issuance and demand driving tighter spreads, lower yields, and favorable pricing. The S&P showed minor volatility, while the Russell 2000 demonstrated stronger risk sentiment, reflecting optimism in HY markets due to overlapping names. This leads us to prefer fixed coupons over variable in fixed income credit markets.
Corporate credit spreads are at historic lows – will September’s bond supply shake up the market? Neil Sun, Portfolio Manager on the BlueBay U.S. Fixed Income team, analyzes the tightest corporate bond spreads in decades and highlights potential opportunities.Investment-grade corporate bond spreads are near 80 bps over Treasuries, driven by strong demand despite slim risk compensation.With $130-150bn in new corporate issuance expected, the market’s ability to absorb supply without widening spreads will be tested.Long-term conditions support a bullish credit stance, but near-term widening may create selective re-entry opportunities for investors.
Fed Chair Powell excited investors last Friday with hints of a potential September rate cut. What’s next for credit markets?Anne Greenwood, Institutional Portfolio Manager with RBC BlueBay’s Fixed Income team, breaks down the market reaction to the Jackson Hole Symposium.Fed Chair Jerome Powell signaled the potential for a September rate cut, citing balanced labor markets and easing inflation risks.U.S. risk assets remain well supported, but heightened uncertainty and a wide range of outcomes suggest volatility is likely to persist.It is important to maintain a cautious approach to credit risk and liquidity as markets prepare for seasonal shifts in debt supply.
All eyes are on Jackson Hole this week as investors digest recent economic data and look ahead to the Fed’s next moves.Mindy Gudmundson, Institutional Portfolio Manager with RBC BlueBay’s U.S. Fixed Income team, breaks down the latest inflation data, rate cut expectations, and what to watch ahead of Chair Powell’s Jackson Hole speech.Headline inflation dipped to 2.7%, nearing the Fed’s target, but core CPI rose to 3.1%, keeping inflation risks in focus.Markets expect a 25 bps cut in September, with more cuts likely in the months ahead.Chair Powell’s speech in Jackson Hole is expected to provide clarity on the timeline and scope of policy easing.
BlueBay Senior Trader Peter Keenan highlights key themes following the most recent inflation data release. Inflation Data Overview: July's Consumer Price Index (CPI) rose 0.2% month-over-month (headline) and 0.3% excluding food and energy, with year-over-year increases of 2.7% (headline) and 3.1% (core), aligning with expectations. Market and Fed Expectations: Markets now price a 96% chance of a 25 bps rate cut in September, up from 86% pre-CPI release. The Jackson Hole Symposium (Aug 21-23) is expected to signal further monetary easing, consistent with the Fed's potential 1-2 rate cuts this year.Economic Outlook: Despite a slowing pace of activity below 2% in late 2025, deregulation and policy easing may support economic growth into 2026. Corporate earnings have remained resilient, countering concerns of deeper economic trouble.
BlueBay Portfolio Manager Laurie Mount discusses how the fallout from Friday’s lousy jobs report could dominate Washington and Wall Street for some time.The July jobs report fell significantly below expectations, with only 73,000 jobs added versus the forecasted 104,000, while the unemployment rate rose to 4.2%, signaling a potential softening in the labor market.Treasuries rallied sharply, and markets have now fully priced in two Federal Reserve rate cuts by year-end, reflecting growing expectations for monetary easing.The FOMC's recent decision to hold rates steady saw rare dissent from two Governors, highlighting internal debate over balancing risks to growth and inflation amid ongoing tariff and labor market concerns.The Federal Reserve's data-driven approach will focus on upcoming CPI releases and jobs reports, with portfolio strategies being adjusted to prepare for potential lower interest rate environment.
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