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Fixed income

Don’t chase duration alone in 2026

February 23, 2026 - 3 min

Which segment of the credit bond market should investors focus on in 2026?

2025 has been a good vintage for risky assets’ performance as a whole, exactly in line with what we said at same time last year. High yield has outperformed  investment grade, which outperformed money market. That said, beware the risk of a further steepening of the yield curve. Why that? Because the short term end and the belly of the curve have outperformed the long end, which has underperformed. All in all, we could say that the Liberation Day moment was short lived in 2025.

 

Is it too late to invest on the High Yield bond market?

Our conviction for 2026 is quite straightforward. We believe that it makes more sense to go slightly down the rating spectrum rather than extend duration significantly. Relying only on duration to generate returns looks less compelling today, especially because yield curve steeping may not be over. In that context investment grade still has its place in portfolio allocation, but in order to enhance carry, we tend to favor crossover strategies or even high yield selectively. This allows for a higher level of returns, higher level of yields, while remaining quite short on a duration basis, which is a key consideration in today's market.

 

Could you highlight one opportunity and one risk in the bond market in 2026?

We think that the ECB should keep its deposit rate at 2% for the whole course of 2026, which means that money markets is less and less appealing in order to get to 3%, 4%, or even 5% of returns. One should keep at looking at asset classes whose carry is larger, like high yield, crossover or even investment grade to a lesser extent. As for risks, there are many, many of them, but as regards to the recent events at the beginning of this year, we think that the geopolitical risk is quite complex to factor in. That said, it's true that for the time being its impact on financial market valuation has been quite muted, at least for the time being.

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