Q1 2026 Asset class outlook: Global fixed income

February 03, 2026

Constructive, but global diversification is essential in the year ahead.

By: MFS Investment Management

As part of our Asset Class Outlook series, our sub-advisor MFS Investment Management shares its views and perspectives for the global fixed income space for the first quarter of 2026.[1]

The outlook for global fixed income in 2026 is constructive, but macro volatility, policy divergence and geopolitical complexity reinforce the need for a global approach. Rebalancing away from the U.S. and embracing global credit and emerging markets (EM) debt can enhance risk-adjusted returns and resilience in portfolios.

U.S. duration

The U.S. Federal Reserve (Fed) is expected to continue with rate cuts in 2026, prioritizing employment over inflation as labour market softness persists. While these cuts and fiscal stimulus should support growth, further easing may be limited by internal Federal Open Market Committee (FOMC) dissention and leadership changes. The environment remains complex, and yield curve positioning is critical.

Eurozone duration

The European Central Bank’s easing cycle has likely ended, but moderating inflation and fiscal expansion targeting defence and infrastructure should support a recovery in growth. While the balance of risks has become more stable, risks remain, including competition from China, cautious consumers and fiscal challenges in select member countries. While not our base case scenario, these factors may require additional policy support.

U.S. investment grade (IG) corporate bonds

Fundamentals are solid, with strong cash balances and improving interest coverage. However, tight spreads and macro uncertainty suggest a cautious approach is warranted, with returns expected to come primarily from yield income rather than capital gains. The current environment supports a shift toward higher-quality bonds and careful selection of individual credits.

U.S. high yield (HY)

The segment remains robust, supported by low leverage, strong free cash flow and low default rates. Attractive breakeven yields make HY appealing for credit risk exposure, but stretched valuations mean security selection is paramount.

Europe IG & HY

Both segments should benefit from strong fundamentals and fiscal expansion, particularly in sectors like defence and utilities. However, tight spreads driven by robust technicals leave MFS Investment Management defensively biased. While breakeven yields remain attractive, dispersion at the security level makes credit selection essential.

Emerging markets (EM) debt

EM debt offers compelling yield valuation and resilience, despite higher fiscal risks and global uncertainties. Country selection is crucial, as EMs are exposed to geopolitical and policy risks, but robust macro fundamentals and a weaker dollar should indicate favourable economic conditions.

Conclusion

In 2026, global diversification will be essential to navigate volatility and capture opportunities across regions and sectors.

Learn more about our Sun Life MFS funds.

1 Data and views as of December 31, 2025 unless otherwise noted.

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Views expressed are those of MFS Investment Management Canada Limited, sub-advisor to select Sun Life mutual funds for which SLGI Asset Management Inc. acts as portfolio manager.

MFS Investment Management Canada Limited is the sub-advisor to the Sun Life MFS Funds; SLGI Asset Management Inc. is the registered portfolio manager. MFS Investment Management Canada Limited has appointed MFS Institutional Advisors, Inc. to provide additional sub-advisory services.