The Weekly Fix

Is the AI boom testing market limits, or uncovering new opportunities in fixed income for 2026?

Anne Greenwood, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, explores the outlook for U.S. fixed income markets in 2026, focusing on Federal Reserve policy, the credit cycle, and the impact of surging AI-driven debt issuance.

• We expect a hawkish rate cut to close 2025, signaling a dovish path ahead, with more cuts expected in 2026 as U.S. growth reaccelerates.
• Despite tight spreads, stronger credit quality and rising volatility create opportunities for idiosyncratic spread compression trades.
• Record AI-related debt issuance may lead to short-term dislocations, but diversified funding channels and sustainable growth in AI point to resilience.

Mindy Gudmundson, Institutional Portfolio Manager on RBC GAM's BlueBay U.S. Fixed Income team, explores how the longest-ever government shutdown has led to a data backlog, intensifying bond market volatility and uncertainty surrounding December’s FOMC rate decision.

• The 43-day government shutdown delayed critical economic data releases, distorting analysis and increasing market volatility as investors navigate incomplete information.
• U.S. Treasury yields experienced sharp movements, closing above 4.05%, as markets priced in a potential Federal Reserve rate cut in December.
• Investor tensions remain elevated amid rate-cut speculation, stock-market instability, and persistent macroeconomic ambiguity, driving interest in fixed-income securities.

With more volatility potentially on the horizon, we believe US High Yield bonds can provide a ‘port in the storm’.

Tim Leary, Senior Portfolio Manager on RBC GAM’s BlueBay U.S. Fixed Income team, explains how US High Yield (HY) bonds have continued to stand out as a reliable option for generating income while managing rate risk during periods of market uncertainty.

• The US HY index currently provides an Option Adjusted Spread (OAS) of 307 bps with a duration of just over 3 years, widening 14 bps this year despite a 7% return.
• Compared to US Investment Grade (IG) corporates, which yield 83 bps with a 6.4-year duration, HY bonds have offered higher income potential with notably lower interest rate exposure.
• With economic data releases expected to drive rate volatility, well-rated HY bonds have continued to deliver steady interest income for investors managing through changing conditions.

Big Tech is reshaping the bond market. Are investors ready for Silicon Valley’s mega issuances?

Neil Sun, Portfolio Manager on the BlueBay U.S. Fixed Income team, discusses a tectonic shift in Silicon Valley’s funding strategy. Once cash-rich with pristine balance sheets, major tech companies are now tapping the investment-grade bond market to finance their soaring AI-related capital expenditures.

• Silicon Valley's debt strategy shift, including $75bn in recent issuances, shows tech giants are prioritizing debt over equity due to tight spreads and tax advantages.
• Multi-tranche deals across maturities, from 5 to 50 years, are catering to robust demand from insurance and pension funds seeking durable and high-rated bonds.
• For investors, the short-term market impact may feel bumpy with wider spreads, but this creates valuable opportunities to grab highly rated mega-cap bonds at more attractive valuations.

Divided Fed, uncertain future: Powell’s cautious tone raises questions about policy shifts ahead.

Laurie Mount, Portfolio Manager with RBC GAM’s BlueBay US Fixed Income team, highlights the Federal Reserve's recent rate cut and its impact on cash strategies amid ongoing economic uncertainties.

• The Fed lowered the fed funds rate by 25 basis points to 3.75–4.00%, while signaling caution regarding December cuts due to labor market risks and committee divisions over inflation concerns.
• Fed Chair Powell warned against assuming another rate cut soon, citing a lack of data due to the government shutdown, which has already led markets to cut December rate cut predictions significantly.
• In response, our team is prioritizing floating-rate securities and short-term fixed-rate assets under one year, vigilantly analyzing Fed communications and economic data to adapt to evolving conditions.

Systemic risk, or just unusual events? Recent market turbulence leaves some questions about how long high valuations and tight spreads will continue.

Anne Greenwood, Institutional Portfolio Manager on RBC BlueBay’s US Fixed Income team, discusses the current market landscape and opportunities for active managers.

• Equities at record highs and tight credit spreads indicate market resilience, despite recent jitters.
• Lower-quality high-yield bonds and leverage loans require caution due to deteriorating credit metrics and increased default rates.
• Active managers may be able to capitalize on volatility by providing liquidity and generating strong risk-adjusted returns in fundamentally stable companies.

Credit cycle deterioration? Not so fast- new earnings reports from the banking sector ease fears of financially stretched consumers and companies.

John Guarnera, Senior Corporate Analyst on RBC BlueBay’s US Fixed Income Team, explores the latest data from US banks and an outlook on recent credit market developments.

• Third-quarter earnings from major US banks revealed stable asset quality and improved credit metrics.
• Banks' balance sheets remain robust, with high capital levels and strong liquidity, supporting their ability to manage potential risks.
• Consumer and commercial credit trends show improvement, with delinquency metrics stabilizing across prime and subprime markets.

US High Yield continues to perform well this quarter- but geopolitical volatility demands strategic positioning.

In this edition of #TheWeeklyFix, Charlie Whinery, Portfolio Manager on RBC BlueBay’s US Fixed Income Team, breaks down Q3's strong performance and how his team is navigating current market dynamics.

• US HY delivered solid 2.4% returns in Q3 with robust $140B issuance, low leverage levels, and healthy interest coverage ratios well above historical norms.
• Geopolitical risks create uncertainty - Trump's tariff threats on Chinese goods sparked volatility, making front-end positioning a potential strategic advantage.

Amid a shifting market landscape, fixed income strategies are evolving to uncover

value in key sectors.

Andrzej Skiba, Head of BlueBay U.S. Fixed Income at RBC GAM, shares how his team is navigating today’s market dynamics while seeking to position for strong returns in 2026.

• Favoring curve steepeners for U.S. interest rate exposure, with resilience expected unless inflation drops significantly or fiscal deficits shrink unexpectedly.
• Generic corporate credit spreads remain unappealing, prompting a focus on idiosyncratic opportunities in sectors like California utilities, chip manufacturing, and US housing.
• We anticipate high single-digit returns in investment grade and high yield fixed income, supported by multiple rate cuts and U.S. growth above 2%.

New GDP data shows economic growth, but labor market and political risks keep markets on edge.

Mindy Gudmundson, Institutional Portfolio Manager with RBC BlueBay’s US Fixed Income team, breaks down the latest economic data and key developments shaping markets.

• Second-quarter GDP revised to 3.8%, driven by strong consumer spending, while jobless claims fell, easing labor market concerns.
• This week’s labor market data will be critical in shaping expectations for Federal Reserve rate cuts.
• A potential government shutdown could delay key economic data releases but is unlikely to significantly impact the broader economy.