Episodes
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Fed hikes may be overpriced, but yields stay supported by AI-driven growth. IG carry remains strong as record supply tests spreads.
The Treasury curve is expected to steepen in the second half of 2026: front-end yields may ease as oil-driven inflation pressure subsides and markets have potentially priced in too many Fed hikes under Chair Warsh's data-dependent regime, while robust AI-related investment and productivity-driven growth should keep yields stable to slightly higher at the 10-year and beyond.Investment grade credit spreads remain tight — index OAS at 74 basis points with a yield-to-worst of 5.22% — yet strong company fundamentals and yield-based demand have absorbed the heaviest supply environment in years, with US IG gross issuance already crossing $1.26 trillion year-to-date, matching the record pace set in 2020, and July alone forecasted to bring approximately $130 billion in new supply — the busiest July in a decade.Technology and data center bonds have become the defining theme in IG credit for 2026: hyperscalers are expected to borrow as much as $190 billion in the bond market this year alone, and while the team sees this pace continuing, they are building exposure selectively — targeting wider spread entry points among the highest-quality issuers while remaining overweight banks, defensive sectors, corporate hybrids, and insurance, and largely avoiding deep cyclicals and BDC bonds.
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The Federal Reserve's pivot under new leadership is reshaping the fixed income landscape, and investors need to be ready.
Laurie Mount, Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, breaks down what changed at the Fed's latest meeting and how investors should think about navigating this shift.
Warsh's first meeting as Fed chair delivered a hawkish surprise, with officials now projecting higher rates through 2027 and markets pricing in a rate hike as soon as September.The Fed pulled back on guidance and moved to discretionary bond purchases, creating less certainty about future moves and more potential volatility in short-term Treasury yields.While a potential US-Iran deal has pushed gas prices below $4 for the first time since March, tight spreads and lingering inflation pressures still call for caution in this environment.
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Missing episodes?
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The Fed's dual mandate faces unique challenges as artificial intelligence (AI) adoption creates new uncertainty around employment and rate trajectory.
Tim Leary, Senior Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, examines how AI-driven economic transformation is reshaping the outlook for rates and credit markets.
Strong fundamentals support elevated rates - US gross domestic product (GDP) growth fueled by AI capex, low unemployment, solid corporate earnings, and consumer cash balances higher than pre-COVID levels across all income bands (even after adjusting for inflation).AI adoption uncertainty is the critical unknown - The Fed's dual mandate of full employment and price stability will inevitably be tested as AI reshapes the job market, creating unpredictability in both economic direction and rate trajectory.High yield offers a potentially compelling income opportunity - With rates elevated and portfolios shorter in duration, investors are increasingly attracted to the steady cash flow that high yield can provide in today's environment.
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Capital formation replaces innovation as AI's next frontier: a new $85B raise and $1.5 trillion financing gap signal that hyperscaler balance sheets alone cannot fund the infrastructure buildout, forcing debt into utilities, private credit, and securitized markets.
Anne Greenwood, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, examines how AI is transitioning from a technology story to a capital markets story, and why this shift matters for fixed income investors navigating the next phase of infrastructure financing.
AI's capital requirements now exceed what even the most profitable tech companies can self-fund, forcing a migration into investment-grade bonds, utility debt, infrastructure finance, and private credit markets.A major technology company’s $85B equity raise signals a fundamental shift where access to capital becomes as critical as access to technology, echoing historical patterns from railroads to fiber networks.Fixed income investors face a critical question: will AI monetization arrive fast enough to prevent an overleveraged ecosystem, or are we witnessing the early stages of a new infrastructure debt regime?
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Built for this moment: Mortgage-backed securities are earning their place in fixed-income portfolios amidst an uncertain rate environment.
Teri Savage, Senior Trader on RBC GAM's BlueBay U.S. Fixed Income team, unpacks how securitized sectors are navigating sticky inflation and shifting Fed expectations.
Agency mortgages continue to act as a vital defensive anchor for portfolios during periods of broader macro uncertainty. The upward move in 30-year mortgage rates reflects a market transitioning to a higher-for-longer narrative regarding monetary policy. With contained net supply and stable prepayments, mortgage spreads present a highly compelling alternative to corporate credit.
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Prolonged Middle East tensions drive aggressive bond selloffs across global markets, but strong corporate earnings and elevated yields keep high yield resilient amid broader fixed income volatility.
Andrzej Skiba, Head of BlueBay U.S. Fixed Income, explores how geopolitical fatigue is reshaping market dynamics, the widening Fed-ECB policy split, and why high yield continues to outperform amid bond market turbulence.
Geopolitical standoff in the Middle East is wearing thin on markets, driving aggressive bond selloffs as inflation fears mount despite underlying US economic resilience.The Fed-ECB monetary policy divide is widening, with Europe likely facing inevitable rate hikes while the Fed maintains a cautious hold stance and watches incoming data.High yield stands as the year's clear fixed income winner, supported by strong corporate earnings, elevated yields providing carry cushion, and AI-driven market momentum.
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The rapid AI infrastructure buildout draws capital from bonds, banks, and utilities – creating potential for concentration risk exposure.
Neil Sun, Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, breaks down how Artificial Intelligence (AI) infrastructure funding is reverberating throughout public and private credit markets.
Hyperscalers are tapping public bonds, private infrastructure capital, and bank construction loans simultaneously—turning what looks like diversified exposure into overlapping bets on the same AI buildout theme.Banks and utilities are ramping up debt issuance, as utilities fund rising power demands and banks manage expanding balance sheets, compounding market pressure across sectors.What once appeared as well-diversified cross-sector allocations may now represent concentrated exposure to a single mega-theme, as the AI buildout channels through every corner of the credit market.
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Historic Fed discord meets Middle East uncertainty: The most dissenting votes since 1992 expose deep divisions as geopolitical risks and energy prices complicate the path forward for U.S. monetary policy.
Laurie Mount, Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, breaks down last week's Fed meeting where rates held steady, but unprecedented internal disagreement and Middle East tensions introduced new market volatility.
Fed members showed record division on policy direction—the first time since 1992 the committee has revealed such internal disagreement, with markets reacting swiftly to the unexpected discord.Middle East conflict now officially factors into Fed thinking, with the statement acknowledging geopolitical uncertainty and rising global energy prices as key considerations for future policy decisions.Leadership transition unfolds as Kevin Warsh's nomination advances through the Senate while Chair Powell commits to staying on as governor temporarily amid legal pressures facing the institution.
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A fragile equilibrium in fixed income: high yields persist despite tight conditions, creating potential opportunities for disciplined credit selection.
Anne Greenwood, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, examines how elevated yields and tight spreads create a deceptively simple market environment that may reward active security selection and quality upgrades.
Attractive yields meet tight conditions: credit markets currently offer equity-like income levels, but the cushion against market volatility is thinner than historical norms suggest.Selectivity becomes essential in late-cycle markets. With real differences emerging between strong and weak performers, choosing the right securities matters more than riding broad market trends.Upgrading credit quality and avoiding overly risky exposures while identifying overlooked opportunities helps investors capture income without overextending.
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Current energy shocks collide with restrictive monetary policy, creating a different challenge for fixed income investors than 2022.
Mindy Gudmundson, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, examines how today’s potential inflation shock differs from a few years ago, and why timing may matter for bond investors positioning ahead of a perceived peak.
Today's energy shock hits an economy already operating under tight monetary conditions, creating stagflation risks that contrast sharply with 2022's zero-rate environment. Headline CPI heading toward 4% while growth slows materially below early-year expectations, with consumer sentiment reaching all-time lows amid elevated prices. Curve steepening presents potential opportunity as short rates approach their peak with inflation topping out, while fiscal concerns and growth anxiety pressure the long end.
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Markets bounced back, but some investors still aren't buying it. Despite the recovery in equities, positioning remains cautious as high yield fundamentals hold firm.
Tim Leary, Senior Portfolio Manager on RBC GAM's BlueBay Leveraged Finance team, discusses the evolving dynamics between quality carry and market timing in today's environment.
The S&P recovered to flat for the year, yet investors seem to remain split between thinking they missed the rally and expecting another drop.High yield tech companies show stronger balance sheets and more diverse investor interest than their private credit counterparts, despite concerns around AI and private debt.Nearly 90% of the US high yield market carries BB or B ratings, offering potentially consistent income as private credit markets face redemption pressures.
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Quality over risk in volatile markets: Middle East tensions are influencing bond investors toward safer U.S. positions while energy prices create challenges across global economies.
Andrzej Skiba, Head of U.S. Fixed Income on RBC GAM's BlueBay U.S. Fixed Income team, breaks down how geopolitical events are shaping bond strategies and why regional economic exposures differ significantly.
Markets have recovered on hopes for diplomatic progress, though uncertainty around Iran negotiations remains given strategic considerations over key shipping routes.So far, U.S. economic exposure appears more limited due to energy independence, while Europe and Asia may face heightened recession risks from energy price pressures.Investment approach emphasizes high-quality U.S. bonds over riskier options, with selective credit criteria and protective strategies to manage current market conditions.
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A new $55B deal rewrites the leveraged buyout playbook with equity-heavy financing.
Jeff Jablons, Senior High Yield Analyst covering telecom, cable, satellite, and technology sectors on RBC GAM's BlueBay U.S. Fixed Income team, examines how a video game company’s take-private deal shatters conventional leveraged buyout dynamics.
The capital structure flips convention with $36 billion in equity versus just $18 billion in debt, reversing the typical 60-75% debt ratio seen in traditional LBOs.Saudi Arabia's Public Investment Fund anchors this unprecedented deal with a $30+ billion equity commitment, demonstrating the power of sovereign-scale capital backing.Strong investor demand across US and European debt markets suggests continued appetite for large, complex deals despite Q1 volatility.
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Cut expectations evaporate: Federal Reserve easing bets collapsed after March meeting as geopolitical risks and inflation concerns pushed rate hike probabilities above cut scenarios for the first time since last month's two-cut consensus.
Eric Hathaway, Portfolio Manager on the BlueBay U.S. Fixed Income team, explores three catalysts that could revive rate cut expectations despite current hawkish sentiment.
Labor market weakness deepens beneath surface as February nonfarm payrolls fell 92,000 jobs with December revised from +48,000 to -17,000, suggesting unemployment could drift higher and force Fed reconsideration.AI-driven displacement moves from theory to reality as major institutions plan significant workforce reductions, with economists estimating 5-10,000 monthly job losses in exposed sectors could expand into broader white-collar slowdown.Private credit stress could tighten financial conditions independently as defensive lenders, wider spreads, and clogged refinancing channels may prompt Fed action before full recession materializes.The path forward becomes clearer when growth concerns override inflation fears.
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Private credit's software problem creates a potential opportunity for high yield as exposure gaps reveal structural vulnerabilities in direct lending portfolios.
Anne Greenwood, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, analyzes how AI-driven repricing may redirect capital flows across credit markets.
Widespread credit repricing pushes spreads to widest levels since last year, driven primarily by software sector concerns, while energy tightens on geopolitical supply pressures.Direct lending holds over 30% software exposure compared to less than 4% in high yield, concentrating AI displacement risk where liquidity is most constrained and underwriting scrutiny intensifying.Investors pausing private credit allocations may find natural alternatives in today's higher-quality, more liquid high yield market with minimal software sector overlap.
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Corporate credit faces volatility as private credit stress rises, AI divides borrowers, and IG primary strength masks widening dispersion.
Neil Sun, Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, examines how stagflation-style stress and cross-asset volatility are reshaping the credit landscape and potentially creating selective opportunities.
Private credit deterioration is accelerating as BDCs report rising nonaccruals and questionable loan valuations while higher rates expose overleveraged structures in this illiquid corner of the market.AI infrastructure spending creates a credit divide where mega-cap tech maintains robust capital access for data centers and long-term investments while software and leveraged borrowers face intensified scrutiny on business model durability.Strong IG primary demand and open funding markets contrast sharply with rising dispersion in financials and insurance sectors, presenting entry points in defensive high-quality bonds as heavy supply and macro volatility reset spreads wider.
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Positioning pays off: Conservative allocations and incoming cash flows shield high yield investors from geopolitical volatility that rattled broader markets.
Peter Keenan, Senior Credit Trader on RBC GAM's BlueBay U.S. Fixed Income team, examines how cash flows and positioning created an unexpected buffer against Middle East tensions.
High yield bonds showed resilience despite heightened Middle East tensions and surging oil prices on supply concerns from potential Strait of Hormuz disruptions.Conservative positioning and substantial incoming cash from coupons, calls, and maturities created buying pressure in a market where geopolitical uncertainty sidelined new corporate issuance.Treasury markets repriced sharply as investors unwound long positions, recalibrating expectations for Fed policy amid concerns about persistent inflation from rising energy costs.
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RBC’s BlueBay Fixed Income team discusses how US markets have shown resilience with contained inflation, though heavy tech sector debt issuance from AI investment creates credit market pressure while raising questions about potential future inflationary risks.
January CPI rose just 0.2% monthly and 2.4% annually, below consensus, keeping two 2026 rate cuts priced in.Technology sector's elevated 2026 capex projections are generating significant new supply in investment grade credit markets, creating technical spread pressure while high yield remains well positioned.The AI investment cycle presents dual risks—whether monetization will justify near-term spending and whether competition for resources could generate inflationary pressure before productivity gains materialize.
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Trump nominates Warsh for Fed chair as new governors potentially reshape this year’s rate outlook.
Laurie Mount, Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, breaks down how FOMC leadership changes and political headwinds are shaping the Fed's uncertain 2026 policy path.
Rates held at 3.50–3.75% as four hawkish members joined, though dissents from Governors Miran and Waller favored easing.Warsh's Fed chair nomination faces Senate opposition pending a DOJ investigation into Powell.Money market balances near $8 trillion as investors appear to favor short-duration positions.
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Will tighter spreads hold as supply floods the market?
Anne Greenwood, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, discusses the Fed's steady approach and how heavy corporate issuance is shaping the credit landscape.
The Fed is expected to hold rates this week, with the potential for up to 3 cuts later in 2026. Corporate fundamentals remain solid, though shorter-dated bonds may offer advantages as front-end rates potentially decline.Heavy corporate borrowing for AI spending, tech earnings results, and geopolitical tensions could impact spreads and bring volatility in Q1.
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