The three big bond market themes to watch in 2026

DM: Maybe then as a sort of a last question, would you tell us about the top three themes for the rest of 2026 for the TwentyFour Dynamic Bond fund?

GC: Yeah, so I mean, I talk about the t three themes from a fixed income perspective and then how we are managing that within Dynamic. You know, I think the themes are probably similar ones to 2025, right? I think the market’s been quite focused on ai has been focused on private credit and has been focused on the fiscal side of things. We’ve seen obviously lots of volatility, no longer end of government bond curves with respect to AI we’ve had, and we’ll continue to see a large amount of issuance from the hyperscalers, but also from other issuers. And we’ve seen pretty lofty valuations in equity markets, you know, with a lot of optimism that maybe it doesn’t play out.

So, you know, if credit markets struggle to take down that enormous amount of issuance or if equity market valuations rerate lower because the return on investment from these AI, this AI CapEx is maybe lower than people expect, there could be contagion you know, the fiscal side government spending is too high. And I think maybe that’s become less of a focus in recent months given other dynamics, labor markets and inflation. But that I think will continue to periodically pop up in the coming years.

We’re not expecting a 2022 type sell off in the gilt market, for example. But the net amount being issued to the markets on the government bond side is large, right? You know, 2 trillion plus in the US. And the way that this is manifested and we think will continue to manifest is by, you know, seeing higher risk premium building a higher term premium into government bond curves. And we can still, I think, expect volatility particularly longer end.

And on the private, private credit side, you know, it’s obviously a sector that has grown very quickly in recent years, and maybe there have been some concerns emerging about the quality of the underwriting. I think in some areas not this is, you know, only related to I think a few areas particularly after tricolor and first brands and Jamie Diamond’s comment about “cockroaches in the space”. So in truth we are likely to see more, you know, “cockroaches,” this is the nature of high yield credit investing. You can expect default rates to be more than zero. The historical average in the US high yield market, for example, is above 3%. I think the thing that, will most acutely affect that default rate in the private market will be what happens to the economy, right? And I think that default rate in private market will ultimately be quite correlated to the default rate in the public market.

So from our perspective, Dynamic has no direct exposure to AI, it’s got no direct exposure to private credit. We don’t have an investment where the return on that investment will be determined by the return on equity on AI CapEx. We are not exposed the vagaries of the long end of the government bond, we don’t have any 30-year exposure in any currency. And of course we focus on liquid public credit and we do have a lot of liquidity and we have flexibility.

So I think in this environment in particular, maintaining that flexibility, maintaining that liquidity you know, focus on strong rigorous due diligence from a bottom up perspective, and you’re very well placed to take advantage of any credit volatility if we were to see it.

GC: George, thank you very much. And if you would like to get more information on the TwentyFour Dynamic Bond fund, please do visit fundcalibre.com