Stay away next year from “long” government bonds and from corporate bonds, both high yield and investment grade. Profligate governments and poor risk-return profiles will spoil the mood in those markets.
Two thirds of the asset managers who participated in Investment Officer’s Outlook Survey 2026 do not favor bonds next year. Key reasons: fiscal dominance, plus the perception that the last phase of the economic cycle has begun.
In the survey, Investment Officer asked asset managers which asset class they advise avoiding in 2026. Four of the 28 participating managers left the question unanswered. Paul Jackson, global markets strategist at Invesco, knows why, as he wrote: “it is always risky to answer such questions, just as short positions can often be very painful.” Invesco itself is willing to take that risk, now and then. “if forced: I prefer to avoid the overconcentrated US equity market, the mega-cap stocks. I believe too much good news is already priced into those stocks,” Jackson said.
Invesco therefore does not align with the consensus among the 24 managers who did answer. Sixteen of them end up with bonds. Half focus primarily on government bonds, the other half on corporate bonds.
A false sense of safety
Long-dated government bonds will offer only a false sense of safety in 2026, argued Peter van der Welle, multi-asset strategist at Robeco. “We think the market is still underestimating inflation risk, and the increase in fiscal dominance is not yet fully priced in,” he said. “This justifies higher term premiums in our view.”
Building on that, Carmignac directs its attention especially to thirty-year debt of the US, Japan, the UK and France, countries that Kevin Thozet, member of Carmignac’s investment committee, labels “fiscal offenders.” They offer too little compensation for the risk, he argued, so there is only one thing to do: “we avoid or short them.” Looser monetary policy by central banks could help, he added, but that will eventually come to an end. “And with inflation in the US stubbornly staying above 3 percent, that moment may be closer than expected.”
Columbia Threadneedle Investments also fears for stability in the government bond market. Political pressure on central banks—a hallmark of fiscal dominance—can undermine investors’ confidence in effective inflation control, analyzes William Davies, global CIO. “The market increasingly sees the imbalance in countries’ fiscal policy as a structural rather than cyclical phenomenon. all in all, investors in long-term government bonds face high risk in 2026.”
Exceptionally tight
Choosing corporate bonds instead is also not recommended. Asset managers say they are “struggling” with the low compensation that investors receive for the risk they take in corporate bonds, and eight participants in IO’s survey name it the category to avoid next year. That applies to both investment grade and high yield bonds. “Spreads in investment grade are exceptionally tight,” wrote Salman Ahmed, global head of asset allocation at Fidelity International. “Historically that has often gone together with lower future returns. Current economic conditions may still be constructive, but there are sectors where valuations have only very limited upside potential.”
JP Morgan Asset Management notes that companies tend to “increase their debt load” in this late phase of the economic cycle, writes global market strategist Lilia Peytavin. She illustrates this with the recent wave of (huge) debt issuance by AI companies. Peytavin says she does not fear for those companies themselves, given their strong balance sheets, but the wave is relevant for broader credit markets. “Meta recently issued approximately 30 billion dollar of debt, while new supply of investment grade bonds in November totaled roughly 136 billion dollar. that concentration will have consequences for valuations and liquidity.”
Categories to avoid in 2026*
*Number of asset managers (out of 28 total) advising investors to avoid this category.
In high yield corporate bonds, the risk-return trade-off is also worrying. Vera Fehling, CIO for Western Europe at DWS, believes investors in that category are not receiving sufficient compensation for default risk. “High yield needs wider spreads or clear signs that the economy is strengthening to become attractive again.”
Vincent Mortier, group CIO of Amundi, sees risks especially in US high yield. The high valuations and stretched balance sheets of the companies themselves, combined with the market effects of US fiscal policy, “make us cautious,” Mortier said.
10–0?
Do bonds lose 2026 by 10–0 to all other asset classes? Based on the number of votes in this survey, that could be a conclusion. But in terms of weight, some of the biggest firms voice a counterargument. Most striking is “giant” Vanguard, which, through senior economist Shaan Raithatha, states that US growth stocks are number 1 when it comes to avoiding. Vanguard thus aligns with the previously mentioned Invesco. “the high expectations for US technology stocks will likely not materialize,” Raithatha believed. “for two reasons: earnings expectations are already high, and people often underestimate competition from newcomers, who will erode the profitability of current high flyers.” Vanguard expects the overall US equity market to deliver an average return of 4 to 5 percent annually over the next five to ten years. Below the long-term average, in other words.
Investment Officer’s Outlook Survey 2026
This article is part 3 of a series of five, based on a survey that Investment Officer sent in the second half of November to asset managers operating in Europe. The findings are based on the written responses of strategists and investors from Aberdeen, Aegon Asset Management, Amundi, Blackrock, Capital Group, Cardano, Carmignac, Columbia Threadneedle Investments, Comgest, DWS, Fidelity International, Goldman Sachs Asset Management, Invesco, JP Morgan Asset Management, Legal & General Investment Management, M&G Investments, MFS Investment Management, Natixis Investment Managers, Northern Trust Asset Management, Nuveen, PGIM Fixed Income, Pictet Asset Management, RBC Bluebay, Robeco, Schroders, Triodos Investment Management, Van Lanschot Kempen and Vanguard.
Together these asset managers manage an estimated 54.000 billion dollar in assets worldwide, accounting for over 40 percent of the market.