Global fixed income October 2026: navigating choppy waters

Schroders argues that global fixed-income investors should favour Canada and Europe selectively while remaining neutral on US government bonds amid a warmer inflation backdrop.

• The Fed has recently hiked, underlying inflation remains around 2.2-3%, and Schroders assigns zero probability to a no-hike or rate-cut scenario.
• Sticky services inflation should keep the Fed hiking in the short term, but tariff and temporary pressures may ease in the first half of 2027; US consumption and investment in technology hardware and AI infrastructure remain solid.
• Ten-year Treasury yields above 5% offer attractive income, but strong growth, above-target inflation and a Fed that has only just started hiking limit the potential for significant outperformance.
• Canada appears more favourable because core inflation risks undershooting target and the labour market has softened, while substantial further Bank of Canada tightening is already priced.
• In the eurozone, high energy prices support at least one further ECB hike in December, but sovereign-market stress and the effects of tightening make the market's expected path look too aggressive.
• Schroders turns neutral on European corporate credit, upgrades emerging-market local-currency bonds including Mexico, downgrades core eurozone government bonds excluding Germany, and prefers Greece and Hungary while remaining wary of Belgium.

Takeaway: The recommended stance is selective rather than broadly defensive: neutral US Treasuries and European corporate credit, preference for Canada, Europe and emerging-market local debt, and caution around eurozone political and sovereign risks; the main tail risk remains a Fed cycle involving at least three additional hikes.