Higher bond yields in an era of abundant supply

Higher bond yields and the shift from scarce to abundant bond supply make fixed-income investing more dependent on selective risk-taking than on a broad market rally.

• Consensus expectations for hyperscaler capital expenditure in 2027 exceed USD 1 trillion, while governments, technology companies and utilities increasingly compete for the same pool of long-term capital.
• US underlying growth is near its 2% trend rate, supported by technology investment and a firm labor market, but housing is weakening, consumer spending is slowing and real disposable income growth is approaching zero.
• The Fed raised rates in September and further tightening is considered likely; the ECB is also expected to raise rates, although renewed turmoil in French government bonds could disrupt that path.
• Global duration remains neutral, with a more constructive view on European duration and underweights in Canada, Japan and emerging Asia; a further rise in the US 10-year yield toward 5.5% cannot be ruled out.
• Credit spreads remain historically tight, while median BB and B high-yield spreads are near record lows; CCC and distressed credits have materially underperformed, and heavier issuance is creating early signs of fatigue in technology-related bonds.

Takeaway: High starting yields improve the cushion against further rate rises, but tight valuations and weaker technical conditions favor quality credit, shorter spread duration and selective exposure rather than large directional bets.