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Where to park your bond money if rates rise in 2026
Rightly or wrongly, the market is pricing in the full extent of two cash rate rises this year, while outliers like AMP’s chief economist Shane Oliver expect the Reserve Bank of Australia (RBA) to keep interest rates on hold at 3.60% throughout 2026. While inflation remains too elevated for the RBA to adopt an easing bias, Oliver believes the modest slowdown in underlying inflation in November gives the central bank breathing room, while economic data continues to deliver mixed signals. “The money market’s expectations for rate hikes have cooled a bit with only a 24 per cent probability of a February hike now priced in but still looks too hawkish for the year as a whole,” Oliver said. “Our expectation is for trimmed mean inflation around 0.8 per cent qoq [quarter on quarter] or 3.2 per cent yoy 2026 which would be in line with the RBA’s last set of forecasts and should allow the RBA to sit tight on rates.” However, assuming Oliver is wrong, and the RBA does decide to raise rates - while virtually all other global economies are cutting - now could be a good time to increase overall allocation to fixed income through attractive options like floating rate bonds, low-risk bonds and others. Australia aside, the only ot
Bonds
Bond sell-off deepens as Trump ramps up tariff threats
What began as another round of aggressive rhetoric from United States President Donald Trump has now soured into a full-blown repricing of risk, debt and credibility across the world’s biggest economies. What we’re currently witnessing isn’t a technical wobble; it’s a warning shot to Trump. At the centre of the storm sits Washington, with Trump threatening to slap tariffs on European allies — explicitly tying trade punishment to support for U.S. control of Greenland — that have dragged markets straight back into trade-war mode. However, this time, investors didn’t wait around for policy details; they sold first and asked questions later. U.S. Treasurys, long treated as the planet’s safest asset, were dumped aggressively with long-dated yields surging toward levels that historically force political U-turns. The move wasn’t subtle with the 30-year yield barrelling toward the psychologically charged 5% mark, while the benchmark 10-year broke out of its long slumber. When bonds sell off like this, markets aren’t just nervous, they demand compensation for chaos. Europe didn’t escape the furore with German bunds, French OATs, Italian debt and UK gilts all moved sharply higher in yield. This serves as a synchr
Bonds
Trump disclosures reveal US$100m bond buying spree
United States President Donald Trump purchased up to US$100 million (A$149.3 million) in municipal and corporate bonds between mid-November and late December, according to newly released financial disclosures. Disclosures posted on Thursday and Friday show Trump bought a broad mix of municipal bonds issued by cities, school districts, utilities and hospitals, alongside corporate debt from companies including Boeing, Occidental Petroleum and General Motors. The filings also reveal purchases of up to $2 million in bonds issued by Netflix and Warner Bros Discovery, just weeks after the companies announced plans for a merger. The disclosure, filed with the Office of Government Ethics and initially submitted on Wednesday, lists 191 financial transactions. These include two sales worth at least $1.25 million and between $1 million and $51 million in purchases of corporate and municipal bonds. The exact size of the transactions remains unclear, as the report lists amounts in broad ranges, in some cases between $1 million and $5 million. All of the reported investments were made between 14 November and 19 December. A White House official told CNN that Trump’s stock and bond holdings are managed independently by third-par
Bonds
Investor appetite to test surging AI credit market in 2026
According to reports referenced by major Australian ETF issuer Betashares, AI capex-related debt issuance will be the big story for credit markets in 2026 with a dramatic surge in tech-related bond issuances driving a gradual widening in credit spreads as the market absorbs this supply. Based some projections, annual AI-related capex will grow fivefold by the end of the decade with hyperscaler companies and AI labs demanding unprecedented amounts of debt financing for their planned infrastructure buildouts. Based on the observations of BetaShares head of fixed income Chamath De Silva, capex-related issuance is already having an impact at the margin, with the technology and communications sectors currently underperforming. As a result, spreads are widening on a relative basis, in both U.S investment grade and high yield parts of the market. AI-related capex to soar Given that U.S. yields have increased over the last five years, and annual AI-related capex is expected to grow from US$400 billion to over US$2 trillion by 2029, De Silva has raised alarm bells over the bond market's capacity to handle the expected spike in issuance. "We believe that the biggest constraint to the capex spending commitments being reache
Bonds
Sharp repricing makes bond market harder to ignore
What a difference a month makes: After what’s been a rollercoaster year for bonds, we’re now finishing 2025 with an about-face on the additional rate cuts that the market was expecting only last October, to the possibility two rate hikes in 2026. Reflecting the scale and speed of the market’s pivot, Australian 10-year government bond yield spiked to over 4.8% last week - a whopping 55 basis points higher than the U.S. 10-year yield - a level last seen in November 2023. With bond markets having sharply repriced the outlook for interest rates in recent weeks, there’s no better time to review the risk assets within your portfolio. While government and high-grade bonds are currently deemed attractive, some commentary suggests that credit spreads in the corporate bond market are currently tight, meaning investors may not be adequately compensated for taking on additional default risk in that segment. Australian 10-year government bond yield It was easy to conclude that the current 3.6% cash rate was close to neutral, or at least that was the case until the October consumer price index (CPI) release threw a spanner in the works. With inflation well over the 2-3% target, the Reserve Bank (RBA) may find itself with little ch

Bonds
Pros and cons of investing in local vs overseas bonds
While local investors often struggle with the decision to invest locally or head offshore when it comes to investing in bonds, fixed income experts typically recommend a combination of both, and for diametrically different reasons. The main attraction investors have with the global bond market – which is worth around A$230 trillion – is that it's infinitely larger and more liquid, with a wider variety of instruments and exposures. However, that doesn’t mean local bonds don’t or shouldn’t have a place in your portfolio. While the infinitely smaller Australian fixed income market tends to have the same local exposures, the benefits of onshore bonds comes back to their underlying value. The local bond market is barely worth 2% of the overall global market; however, it accounts for 10% of the world’s AAA-rated bond issuances, which helps to explain why it continues to attract foreign investors. With that in mind, Azzet asked Clive Maguchu, senior strategist with State Street Investment Management, whether investing in global bonds was really worth extra work plus the potential currency and interest rate risk associated with it?Currency and interest rate riskFor starters, when it comes to interest rate risk, Maguchu remi
Bonds
AI bond avalanche pressures debt markets
It only takes a cursory glance at the United States bond market to get a meaningful insight into how tech giants are planning to make their grandiose artificial intelligence (AI) aspirations come true. The trouble is that Wall Street is struggling to keep up with the speed at which bonds from these cash-burning tech companies are coming to market. So much so that the prices of newly issued bonds have slid, which has only fuelled investor anxieties over tech stock valuations, which look stretched relative to historical levels and other market sectors. Based on The Financial Times estimates, corporate bonds from big tech firms are projected to account for over a quarter of the net supply of U.S. corporate bonds this year. With AI-driven bond issuances increasing, JP Morgan expects the U.S. investment-grade bond market to expand to a record US$1.81 trillion in 2026. To put the recent uptick in tech stock bonds in context, since the start of September, so-called AI hyperscalers Amazon, Alphabet, Meta Platforms and Oracle alone have issued around US$90 billion of investment-grade bonds. According to Dealogic, that’s more than the amount they had sold over the previous 40 months.Higher yields While, these companies were a
Bonds
US shutdown prompts Treasury to activate fallback index
The United States federal government shutdown that’s threatening to freeze October’s inflation report is forcing the Treasury to use a fallback index for TIPS pricing for the first time, which would create short-term pricing uncertainty requiring traders to adjust their calculations. The U.S. Treasury is planning to deploy a workaround to compute the index in the absence of official data that underpins the US$2.1 trillion market for inflation-protected bonds for the first time since their launch in 1997. The absence of official inflation data is creating a headache for Treasury Inflation-Protected Securities (TIPS) market participants, as the value of those bonds, which investors use to protect their capital from inflation, hinges directly on the index. While TIPS pay a fixed interest rate, the interest is calculated on a principal amount that rises with inflation and falls in periods of deflation. How much the principal rises or falls is determined by the CPI index. TIPS yields, also known as ‘real yields’ because they discount inflation, have increased slightly over the past few days, which is understood to reflect uncertainty over their pricing in the absence of CPI data. "There's definitely uncertainty in t
Bonds
Investors pivot to defensive credit as bond yields rise
With markets looking expensive and credit spreads tightening, major investors have been actively reducing their exposure to riskier corporate debt amid concerns that recent market rallies have left precious little buffer against potential downturns. In light of limited additional reward for taking on additional risk, as credit spreads narrow, asset managers are unsurprisingly shifting toward more defensive strategies. According to Chris Iggo, CIO at AXA IM, who manages over €465 billion (A$830.6 billion) in fixed income, there’s been an increase in long-term bond yields and evidence that government bonds have cheapened relative to other assets.Greater risk premium in government bondsWhat's the widening gap between government bond yields against the swaps market is telling us, adds Iggo is there’s more of a risk premium in government bonds, with government bond yield curves continuing to steepen. Iggo currently favours short-duration strategies across different fixed income asset classes, including high yield, investment grade credit, government bonds and infrastructure-linked bonds. “Although we’ve got to more normal levels in bond markets, there’s more to go in terms of that yield curve steepening,” said Iggo. “W