Global Fixed Income Strategy - January 2026
Global macro strategy
Macro conclusions from the IFI Summit: US, Europe, the UK, China and EM
Executive summary
US
Tariffs dominated 2025, driving cost-push inflation and weakening business confidence. In 2026, fiscal stimulus and monetary easing will likely aim to restore growth but could be complicated by persistent inflation near 3%.
Europe and UK
Eurozone fiscal policy has shifted to expansion, aided by defense-related budget exemptions and remaining COVID recovery grants. Germany’s stimulus could modestly lift growth, but execution risks and fiscal multipliers remain uncertain.
UK inflation stems from indexation and fiscal choices, not demand. Budget measures support disinflation, however, enabling gradual Bank of England easing, despite ongoing wage pressures.
China
Official growth targets emphasize quality of growth over speed. We maintain a 4.5% GDP forecast and expect policy pivots toward economic opening, advanced manufacturing, and deeper capital account liberalization under the Five-Year Plan.
Emerging markets
EM growth is stabilizing near potential, supported by AI-driven investment spillovers and resilient domestic demand. Disinflation has aided policy normalization, though services inflation remains sticky.
EM structural trends—Latin America’s political realignment, youth-led anti-corruption movements, and AI-linked capital flows—create selective opportunities amid trade fragmentation and shifting global investment patterns.
Macro themes play an important role in Invesco Fixed Income’s (IFI) investment process. Our framework of “macro factors” focused on growth, inflation and policy, helps us project macro trends and interpret market movements. At our year-end 2025 Global Investors’ Summit, investors from across the IFI platform gathered to discuss and debate their views on global macroeconomic trends. Below we share their main conclusions on the US, Europe, the UK, China and emerging markets (EM).
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Non-investment grade bonds, also called high yield bonds or junk bonds, pay higher yields but also carry more risk and a lower credit rating than an investment grade bond.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
Mortgage- and asset-backed securities, which are subject to call (prepayment) risk, reinvestment risk and extension risk. These securities are also susceptible to an unexpectedly high rate of defaults on the mortgages held by a mortgage pool, which may adversely affect their value. The risk of such defaults depends on the quality of the mortgages underlying such security, the credit quality of its issuer or guarantor, and the nature and structure of its credit support.
