Multi-asset outlook Part 2 – Fixed income 2026: Bonds remain an important anchor of stability

Currencies and bonds are increasingly moving in lockstep: currency trends influence return opportunities—and vice versa. “The US dollar will certainly remain the reference currency for the foreseeable future, but it is losing its appeal,” says Marcus Zasada, Managing Director of Traditional Investments at FERI. “The erratic and strongly nationalistic policies of the US government have already triggered capital outflows and a depreciation of the US dollar of more than ten percent against the euro in 2025 – a movement that is likely to continue structurally in the new year, albeit with less momentum.” According to Zasada, this devaluation will occur in cycles and spurts: “Active management is crucial in order to be well positioned in the respective phases.” 

This results in an ambivalent picture for US government bonds. Although the economic slowdown resulting from import tariffs could dampen yield levels and enable temporary price gains, the risks are increasing. However, the risks are increasing: “The massive increase in debt and the market's sensitivity to political shocks are weighing particularly heavily on long-term maturities.” Combined with a depreciating US dollar, this creates a double risk for international investors – currency losses and possible price declines. This makes the US bond market in 2026 a relatively unattractive market in which active duration management and currency hedging are inseparable. 

Steeper yield curves require a selective approach

Overall, FERI believes that bonds will remain an important anchor of stability in 2026, but their buffer is becoming thinner. The anticipated interest rate cuts by many central banks are supporting the markets, while high and rising government debt worldwide is increasing uncertainty. “Yield curves are steepening because short maturities are benefiting from monetary policy easing, while long maturities are suffering from political and fiscal risks,” explains Zasada. "Euro bonds with short to medium maturities still offer a return at the level of real capital preservation, which at least allows conservative investors to add them to their portfolios. In the longer maturity range, we see opportunities primarily for government bonds from emerging markets, as an environment of falling interest rates is to be expected there."

With regard to corporate bonds, Zasada points out that spreads relative to government bonds have already narrowed significantly. This poses a risk in the event of a deterioration in the economic situation, which is not the main scenario, however. “In the investment-grade segment in particular, solid balance sheet quality and attractive base interest rates remain convincing, which should result in active weighting.”