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UST curve steepened mildly, with 2Y yield climbing 1.45bp to 3.47% and 3Y up 0.28bp to 3.525%, while 10Y dipped 2.16bp to 4.147% and 30Y fell 3.17bp to 4.829%. Short-end pressure stemmed from resilient employment data offsetting soft-landing bets, keeping front-end yields elevated amid sticky inflation risks tied to tariffs and fiscal expansion under current policy shifts. Mid-to-long curve softened on global growth optimism and anticipated central bank easing, though curve positioning reflects caution on sustained rate cuts given robust U.S. economic momentum. Market dynamics favored short-duration bonds over long-end exposure, as steepening supports mid-short term relative value plays with better carry-to-risk ratios. Credit spreads tightened selectively in IG financials and high-quality HY, bolstered by stable funding conditions and benign default forecasts, yet non-IG segments eyed volatility from liquidity draws in event-driven trades. MBS and CLOs held steady, with prepayment convexity aiding duration stability amid moderate volatility. Outlook tilts neutral-to-cautious: expect 10Y UST rangebound 4.10-4.30% as Fed funds path hinges on January data prints, with 25bp cuts paced through mid-year if core PCE eases below 2.5%. Positioning leans tactical—extend in 2Y-5Y buckets on dips, layer sub-5% IG credits for yield pickup, hedge curve risk via payers in 2s10s swaps. Risks skew to reflation surprises lifting yields 10-15bp, favoring barbell portfolios blending short Treasuries and selective EM debt for alpha. Volatility regimes persist, prioritizing liquidity buffers and dynamic duration at 4-6 years.

UST yields edged higher amid stable risk sentiment, with 10Y closing at 4.19% after a 2bp rise from 4.17% prior session. 2Y yield ticked up 1bp to 3.48%, while 3Y held near 3.55%, keeping curve steepening intact. IG credit spreads steady at 79bp OAS, near historic tights on robust fundamentals. HY BB OAS tightened 2bp to 1.69%, signaling low default fears despite elevated yields around 8.5%. Dollar corporate issuance surged to $61B, locking in 4.8% high-grade yields pre-geopolitical noise from Venezuela events. EM debt outperformed peers with strong inflows, buoyed by dollar weakness. MBS and munis showed resilience, with light supply aiding modest gains. Trading volumes thinned post-holidays but liquidity held firm. Outlook favors carry trades in IG and select HY amid Fed pause expectations, though fiscal stimulus risks yield upside. Steepener positioning gains traction as front-end lags back-end on policy bets. Credit selection key in tight spreads; favor BB over CCC for risk-reward. Volatility low, but monitor oil and tariffs for spread volatility. Duration risk balanced via swaps; relative value tilts to EM over DM credits. Portfolio hedging via payers prudent if 10Y tests 4.30%

UST curve bull-flattened mildly as 10Y yield eased 3bp to 4.17% amid thin liquidity, while 2Y held steady near 3.47% on resilient short-end demand. IG corp spreads unchanged at 1.01% for BBB, reflecting tight credit conditions and year-end positioning unwind. HY OAS ticked up 2bp to 2.83% on Jan 2, signaling minor risk repricing post-holidays. Curve steepener trades gained traction with 10Y-2Y spread widening to ~0.70%, supported by steady front-end amid Fed pause expectations. MBS underperformed peers with spreads grinding wider by 5bp vs UST, pressured by QT runoff and softer bank buying. EM bonds extended gains on carry appeal, outperforming amid dollar softening. Equities’ choppy open diverted flows to core duration, capping selloff in belly. Oil price drop eased inflation fears, bolstering rate cut odds for H1 2026. Upcoming US jobs data looms large; soft print could extend flattener unwind, targeting 10Y at 4.05%. Position for barbell: overweight 2Y/30Y UST, selective IG duration; fade HY if spreads breach 300bp. Risk-reward favors receivers in swaptions amid policy divergence risks from incoming administration. Volatility pickup likely tests carry trades, but liquidity buffers support grind lower in yields. 

Wishing everyone a Happy New Year 2026. May your trades be smooth, your risk well-managed, and your P&L hit new highs in the year ahead.

Global fixed income delivered solid positive returns in 2025, driven by high starting yields, moderate disinflation and a late-year shift toward easier central bank policy. 10Y UST finished the year a touch lower in yield despite persistent fiscal concerns, as the Fed cut rates by a cumulative75bp in the second half in response to a softer labor market and fading inflation momentum. Curves steepened across major markets as front-end yields followed policy rates lower while term premia and heavy supply kept pressure on the long end. Global credit returned about10.3% in USD terms, with US IG and HY outperforming European peers thanks to higher all-in yields, resilient earnings and still-benign default dynamics despite a gradual uptick in distress. Spreads in IG compressed to well through long-run averages, while HY remained supported by low near-term refinancing walls and strong demand for carry. EM debt generated strong double-digit returns helped by tighter spreads and a weaker dollar, though performance remained highly dispersed across idiosyncratic stories and political risk regimes. Securitized credit saw robust issuance in ABS and CLOs, with CLO remaining a key funding channel for leveraged loans even as arbitrage conditions periodically tightened; structures with stronger documentation and senior tranches outperformed. Agency MBS traded with relatively tight spreads versus sovereigns as volatility moderated, but rich valuations and negative convexity continued to cap beta appeal for more rate-sensitive allocators. Overall, 2025 validated the “income is back” narrative, with coupons rather than large duration rallies doing most of the heavy lifting for total returns.​

Looking into 2026, the macro backdrop points to a carry-dominated but more nuanced environment, with growth cooling, inflation still above target and policy normalization progressing only gradually. The base case is for additional but limited rate cuts from major central banks as weaker labor data and slowing activity offset concerns about sticky services inflation. Yield curves are likely to remain steep, as front-end yields fall with policy while intermediate and long maturities stay anchored by supply, term premium rebuilding and uncertainty around fiscal trajectories. In this setting, intermediate maturities around5-7Y look attractive from a carry-roll-down perspective, especially in high-quality sovereigns and agency sectors. IG credit enters the year with tight spreads and limited room for further compression, so security selection and sector rotation should matter more than beta; preference is generally for higher-quality balance sheets and subordinated financials over lower-rated cyclicals. HY and bank loans still offer compelling carry, but forward returns will increasingly depend on active management of downgrade and default risk as higher-for-longer real yields filter through to fundamentals. EM hard-currency credit retains a constructive medium-term story, but wider dispersion and rising geopolitical and trade tensions argue for a more selective, benchmark-agnostic approach. Securitized markets, particularly senior tranches in CLO and high-quality ABS, may continue to provide attractive spread per unit of duration versus vanilla corporates, while agency MBS can play a larger role if volatility cheapens the basis. Overall, 2026 is set up as a year where carry, curve positioning and idiosyncratic alpha drive outcomes more than big directional rate calls, with a bias toward high-quality income, intermediate duration and disciplined liquidity management in the face of episodic volatility.

UST 10Y yield edged up 3bp to 4.15%, reflecting hawkish Fed signals amid resilient US data, while 2Y held at 3.48% with weekly drop of 4bp on rate cut hopes. Curve steepened slightly as short-end stabilized post-FOMC minutes, IG credit spreads tightened 1bp to 95bp, buoyed by strong corporate earnings. EM hard currency bonds outperformed, compressing 5bp on USD softening, though HY saw minor widening to 380bp on energy sector volatility.

MBS TBA 30Y dipped 2bp, convexity hedging subdued amid low prepay speeds at 5%. Agency spreads narrowed 1bp to +25bp over UST, supported by solid agency balance sheets. CLO AAA tranches traded flat at SOFR+110bp, with warehouse lines tightening on regulatory scrutiny.

Trump administration tariff rhetoric pressured Eurozone peripherals; Bund 10Y rose 4bp to 2.20%, French OATs spiked 7bp amid fiscal concerns. JGB 10Y yield ticked up 1bp to 1.05%, BOJ taper intact despite yen strength.

Outlook favors duration extension in UST 5-10Y bucket targeting 4.10% entry, hedging via 2Y/10Y steepeners at +15bp. Credit rotation to BB-rated IG names offers 150bp pick-up vs Treasuries, monitoring Libor-OIS for liquidity stress. EM value in Asia ex-China sovereigns, cap IG exposure at 25% amid election risks. Volatility regime persists; position for 25bp Fed cut in Q1 2026, pivot to swaps if curve flattens below -10bp 2s10s.

UST benchmarks edged lower amid mixed economic signals and positioning ahead of year-end. 10Y yield dipped 2bp to 4.13% from 4.15%, while 2Y fell 3bp to 3.46% and 3Y eased to 3.50%. Curve steepened slightly with 10Y-2Y spread widening to 67bp, reflecting hawkish Fed guidance post recent 25bp cut. IG corporate spreads held steady near 94bp, Baa yields slipped to 5.93% from 5.95%, supported by robust issuance absorption and solid earnings. HY retreated -0.13%, underperforming Treasuries by 17bp amid $7.1B supply, though senior loans gained 0.13% on lower rates. EM debt outperformed by 13bp, spreads stable with $27B YTD inflows. MBS and munis showed resilience, latter well bid on reinvestment flows exceeding $40B. Volatility ticked up in bid-ask spreads, signaling caution. Outlook favors resilient income absent credit shocks; term premiums may rise into 2026 on fiscal policy and M&A-driven supply nearing $1tn in dollar corporates. Investors eye curve belly for value, with spreads poised to widen modestly on capex and reverse Yankees. Positioning skews defensive, balancing duration risk against attractive all-in yields.

UST yields edged higher amid mixed economic signals and ahead of key inflation data. 10Y yield rose 1bp to 4.16%, with 2Y up 1bp at 3.51% and 3Y steady around 3.53-3.56%. Yield curve steepened slightly as short-end gains outpaced long-end, reflecting Fed hawkish cut expectations and resilient growth outlook. Corp spreads tightened 1bp to 81bp, supported by solid earnings and demand for high yields despite new issuance. MBS held steady with current coupon spreads attractive near 5.20% yield, buoyed by lower vol and technical buying.​

Market absorbed Fed liquidity measures calming year-end funding pressures, limiting volatility. Equities dipped while USTs saw modest selling post-data, with 10Y testing 4.20% intraday before stabilizing. IG and HY credits retreated mildly but resilient income theme persists absent credit shock.​

Outlook favors front-end USTs on easing path to 3.0-3.5% fed funds, though persistent inflation caps yield drop. EM sovereigns offer value in longer-dated paper from Brazil, Peru amid macro outperformance. Curve likely stays steep on rising supply; focus intermediate duration, TIPS for inflation hedge. Credit favors high-quality issuers as spreads near tights, balancing duration risk with carry. Risks tilt to labor weakness spurring cuts, but sticky CPI may prolong higher-for-longer.

UST 2Y yield held steady at 3.52% while 10Y eased 1bp to 4.18% amid light trading, steepening the 2s10s curve to ~66bp and signaling persistent term premium expansion. IG corporates retreated -0.30% with spreads widening 7bp over Treasuries on sector headwinds in tech and media; HY dipped -0.13%, underperforming by 17bp as supply hit $7.1B despite $543M inflows. MBS and EM debt pulled back alongside core rates while munis stayed resilient, absorbing $10.6B supply with flat yields and $410M ETF inflows from MMFs. Hawkish Fed cut lingers, capping rally as labor data reinforces 4.6% unemployment peak, boosting QT end bets but lifting neutral rate views. Curve likely stays steep into year-end on fiscal supply surge and muted issuance; credit tightens selectively in BB/B segments, favoring intermediate duration and TIPS for convexity amid sticky inflation risks. Portfolio tilt toward quality issuers hedges volatility, with 2026 total returns anchored in coupons over price gains as growth holds firm.

UST bear-steepened modestly as long-end yields edged higher while the front-end drifted lower, with 2Y around%3.50(-3bp) and 10Y near%4.19(+1bp), pushing 2s10s towards deeper positive territory and reinforcing the post-Fed re-steepening trend driven by lower policy-rate volatility and persistent term premia. The move came against a backdrop of a Fed that has already delivered multiple 25bp cuts to the funds rate to 3.50–3.75% while signaling a slower easing path ahead, anchoring the front-end and leaving long-end pricing more sensitive to fiscal concerns, balance-sheet policy and term premium dynamics. Fed communication remains mixed, with some officials cautioning against front-loading further cuts and others highlighting rising labor-market risks, keeping rate-cut expectations for the next few meetings roughly balanced and limiting aggressive bull-flattening in the curve.​

Further out the curve, 20Y and 30Y UST yields traded close to%4.8–4.85, only marginally below recent peaks, underscoring lingering concerns about the fiscal trajectory and sustained supply, while 3Y–7Y sectors lagged as investors preferred to extend from the front-end but stopped short of adding deep duration at current term premia. TIPS underperformed slightly on the day, with 10Y real yields hovering near%1.9 as breakevens were broadly stable, suggesting that the latest moves were driven more by real term premium and convexity hedging than by a repricing of inflation risk. IG credit spreads widened modestly on the back of the higher long-end yield backdrop and softer risk sentiment, while HY lagged more as primary issuance remained active and secondary liquidity thinned into year-end, leading to some dispersion between stronger BBs and lower-quality single-B names.​

Outside the UST complex, core 10Y yields in Europe and other developed markets were slightly firmer in sympathy, but overall moves stayed contained as local central banks are already well into their respective easing cycles and markets focused more on growth data than on marginal policy surprises. The dollar was broadly stable on the day, removing an additional volatility channel for EM local bonds, yet EM hard-currency spreads stayed range-bound as investors balanced attractive carry against lingering global growth and geopolitical risks.​

From a tactical perspective, the current environment still favors a moderate long-duration stance expressed via 5Y–10Y rather than ultra-long tenors, combined with a preference for higher-quality IG credit over HY, given late-cycle dynamics and the risk that growth or labor data could still disappoint relative to the current soft-landing narrative. The re-steepening bias in USTs argues for maintaining 2s10s or 3s10s steepeners on pullbacks, while using any further backup in long-end yields driven by supply or hawkish commentary as an opportunity to incrementally add duration, provided incoming data remain consistent with a gradual disinflation and a measured Fed easing path.

UST 10Y yield edged up 5bp to 4.18% amid Fed hawkish signals post-rate cut, with 2Y rising 2bp to ~3.6% as curve steepens 8bp weekly. IG corporates retreated alongside Treasuries, but HY gained 0.12% outperforming by 33bp on $1.2B inflows; spreads steady at 115-175bp IG, 291bp OAS HY. MBS and EM bonds dipped on duration pressure, while senior loans returned 0.27% best since July amid $5.8B supply. Muni yields unchanged with $736M inflows, $16.6B issuance, reinvestment cash exceeding $42B supporting bid.​

Curve steepening reflects stronger labor data and Fed pause hints, limiting 2026 cuts to one; 10Y-2Y spread nears 2022 highs signaling growth bets. Credit resilience persists on solid balance sheets, but elevated IG supply $600B yearly pressures spreads wider in recession risks. Year-end muni supply mutes amid holidays, favoring long-end 20Y at +112bp over 10Y premium.​

Outlook favors selective duration extension in munis, HY overweight for carry; watch payrolls/inflation for Fed path clarity, potential repo stress via Treasury buys. Risk-reward tilts tactical IG underweight, CLO/senior loan adds for floating-rate buffer as UST volatility persists near 4.2% ceiling.