Global Fixed Income: Outlook & Strategy
October 2026
What if the US Treasury market had a signature song of the summer?
Market Recap & Outlook
If the US Treasury market had a signature song of the summer, it might be Summer-time Sadness, or perhaps Stairway to Yield Heaven. From 4.4% in June, the US ten-year yield has risen to 5.3%, with the rise accelerating in early September. A September Federal Reserve hike plus futures market forecasts of more tightening have not turned around sentiment. Neither, to our surprise, has the news that the Strait of Hormuz is mostly open, with non-Iranian transit volumes approaching pre-conflict levels in recent weeks. Despite these volume gains, Brent oil prices have continued to hover around $100 per barrel. Maybe this reflects how low inventories have become. Absent a conflict re-acceleration, there seems to be some down-side price room here.
Oil aside, inflation data are improving. The core personal consumer expenditure deflator, the Fed’s preferred inflation measure, has stabilized at 3.0% yoy, after rising earlier in the year. Revisions helped. Even better, the core CPI has continued to decline, and is now at 2.4%, lower than where past Fed policymakers have cut interest rates. But that’s not all, bond shoppers! Average hourly earnings have fallen to 3.0% year over year, down from 3.8% a year ago. Given that productivity is tracking above 2%, this implies a unit labor cost of less than 1%. Inflation futures are stable, in our view. This bond bear market is a real rate phenomenon.
US growth is accelerating, with booming August retail sales and capital spending driving the Atlanta Fed’s GDP Now estimate for Q3 to 3.7% currently. Faster real growth often correlates with higher real rates, so perhaps there is no mystery at all. But after suffering through years of negative real yields not so long ago, we now see real yields of 3% if inflation break-evens are used to deflate the nominal ten-year. We view this as the best value story for bonds since before the GFC. Yield heaven may have been achieved, though it feels more like yield purgatory for most fixed income investors this quarter, in our view.
We believe we are not, however, in credit spread heaven, as the US IG spread index is at 82bp. The Euro-zone offers better value at 100bp, aided by the impressive deterioration in sentiment towards France, in our view. As we have noted before, French politics do not lend themselves to political austerity, which France needs with a 5% of GDP budget deficit. Japan and the United Kingdom are currently seen by economic analysts as better fiscal stories. Not good stories, mind you, just better than France. The US dollar has been stronger lately, aided by the September Fed rate hike, by the improving growth story, and sustained positive equity sentiment. French fiscal woes are not helping the Euro. US exceptionalism is back, with AI characteristics.
Our Strategy
Looking forward, we are positive USD duration and duration more broadly. We remain cautions regarding non-US FX, though local events can materially move currencies, as the strong electoral showing of Bolsonaro just did in Brazil. We are cautious towards credit spreads, and choose to be selective, while finding value in some individual issuers. Once more, the biggest risk for credit spreads as well as the USD would be a deterioration in the US large-cap equity AI story. We await the Anthropic IPO with interest.
Sources: Bloomberg, as of October 5, 2026.
Important Disclosures
Key Risks: Credit Risk, Issuer Risk, Interest Rate Risk, Liquidity Risk, Non-US Securities Risk, Currency Risk, Derivatives Risk, Leverage Risk, Counterparty Risk, Prepayment Risk and Extension Risk. Investing involves risk including possible loss of principal.
This marketing communication is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. Investment recommendations may be inconsistent with these opinions. There is no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. Information, including that obtained from outside sources, is believed to be correct, but Loomis Sayles cannot guarantee its accuracy. This information is subject to change at any time without notice. Market conditions are extremely fluid and change frequently.
Market conditions are extremely fluid and change frequently.
Diversification does not ensure a profit or guarantee against a loss.
Any investment that has the possibility for profits also has the possibility of losses, including the loss of principal.
There is no guarantee that the investment objective will be realized or that the strategy will generate positive or excess return.
Past market experience is no guarantee of future results.
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Explore Past Outlooks
Below are the recent outlooks and strategies published by members of the team.
September 2026
At what yield will investors want to buy US Treasuries?
August 2026
A coordinated intervention by the Bank of Japan and the US Treasury.
July 2026
The US dollar is sitting pretty at the moment, heavily overweighted in CTA positioning surveys.
June 2026
The establishment employment release on June 5, 2026 was impressively strong.
May 2026
With the US-Iranian ceasefire extended, investors have moved from the fog of war to the fog of truce.
April 2026
An announced two-week cease-fire in the US-Iranian war has been greeted with joy by global risk markets.
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