Podcast: Strategic Thinking Out Loud

January 2026

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Article Type
BondTalk
Topics
Rates, Macro, Long-Term Outlook
Published
January 16, 2026
Read time
5 mins
Author
Colin Finlayson, CFA
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In the latest edition of Strategic Thinking Out Loud, Colin Finlayson, Investment Manager, has a look at what the consensus is for 2026, what could be interesting for bond investors and what risks lie ahead.

Transcript

 

A new year always brings a new round of forecasts and outlooks from the investment industry –  let's take a look at what the consensus is for 2026, to see what could be interesting for bond investors and also where it may be wrong.

 

Looking at what’s expected for growth, inflation and interest rates, the first thing that struck me was how benign it looks – it’s mainly a “more of the same” view for 2026. GDP growth is expected to move sideways, at a low but positive level across the major economies - which would be yet another year of “no recession” - and inflation is expected to trend lower, continuing with the disinflationary theme of the last year.


Chart 1: Consensus Forcast - CPI YoY%


Source: Bloomberg as at 31 December 2025.


For Central Banks, expectations are for further cuts from the Fed and Bank of England - but with the ECB on hold - and 10yr yields are forecast to be within 20 basis or so points from where they ended 2025.


So far, so predictable – from a bond managers standpoint, I’d take that.  We like boring – boring is good for bonds.


So where is the interesting stuff, I hear you say? It’s in there if you look.


For example - while rate cuts are expected in the UK and US, the market is pricing in rate hikes in Canada, Australia and New Zealand which would cause a divergence in rates of up to 100bps over the year, between Australia and the US  - but even the small chance of a hike by the ECB  when the Fed cutting rates is worth reviewing.  


Chart 2: Change in Central Bank Rates in 2026 - Market Expectations


Source: Bloomberg as at 31 December 2025. 


As an active manager, these sorts or differences can present opportunities – So, I’ll be watching these markets closely in the period ahead.


And if the consensus is wrong – as it often is – where is the biggest risk?  For me, the biggest risk is in the inflation outlook.  There are good reasons for CPI rates to keep edging lower - and that forms an important part of positive backdrop for bond markets.  


But what if that’s not the case? - what if we see a higher tariff pass through in the US or wage declines stalling in the UK – that would be an issue.  Mainly because it would question the need for further rate cuts at the Fed and Bank of England and, as a result, may require a rethink on the outlook for bonds.  


Although this isn’t part of my base case,  it is a tail risk that needs to be watched.


What other risks are worth watching?  

 

I think we should be prepared for a healthy dose of political and geopolitical risk. Between US midterms in November and UK local elections in May along with things like the recent flashpoint in Venezuela, there won’t be a lack of events to contend with.


The impact of fiscal spending is another one – I’m watching for the risk it underdelivers in Germany and surprises to the upside in the US.


Then there’s the new Fed chair starting in the Spring – the impact of this is difficult to predict….but who it is -  and how they act - may prove to be a key factor for the path of rates this year.


Year ahead predictions are interesting but in the end, are rarely right– given the number of cross currents we face, a prediction that bond markets will finish the year exactly where they started already feels unlikely. 


The key to 2026 is active management and an awareness to take advantage of opportunities and anomalies when they appear.

 

Disclosures

Author

Colin Finlayson, CFA
Portfolio Manager
Colin Finlayson, portfolio manager, is a member of the global rates and multi-sector portfolio management teams.
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