Bond investors likely to see a steepening curve in 2026

In 2026, we really hit the ground running, as we now know the endgame on taxes and on some of the administrations policies going forward. So, in fixed income, we are going to stick to our knitting. We are going to continue to review the fundamentals of companies before we even get to the valuation part. But key areas of interest for fixed income investors will continue to be the Federal Reserve and their policies. We think under the current administration, it is far more likely that rates continue to go down, but the direction is known while the pace and timing is not. So, we look for the yield curve to move down from the very short end that is overnight all the way out to the 2 to 5 year space. But beyond that, it is not the Federal Reserve that controls the pace of rates in the US Treasury curve, it is the bond investors. And while I am not calling for the bond vigilantes to resume their occupancy of that long end of the curve and push it higher, they have been in slumber as of late, I am concerned about persistent inflation, debt in deficits, and interest costs that are consuming more and more of the administration and the government budget. So, fixed income investors will be looking at a steepening curve, and perhaps wider spreads as we consider the outcomes of the policies that free up companies to make decisions. With that, again, winners and losers. And those winners and losers will come in the form of who uses AI better or best, but also in the form of M and A. All in all, we are expecting very steady and robust supply across fixed income markets, including in the tax exempt municipal markets. So, for us, we are back to the basics of discerning value among all of the offerings that the market gives us.