Underlying US inflation offers some encouragement

Candriam argues for selective duration and credit exposure while treating the broader fixed-income rally as conditional on clearer evidence of weaker inflation, growth or fiscal pressure.

• In US Treasuries, it keeps a modest duration overweight in the 3–5 year maturities because pricing is above fair value and positioning is unusually short, but expects a hike mainly to preserve Fed credibility rather than to tighten financial conditions sharply.
• In Europe, it maintains a 10-year Bund duration overweight near 3.5% yields, a 10–30 year steepening bias and underweights in France and Belgium; three ECB hikes by April 2027 are already priced, while energy-driven inflation could also weaken growth.
• It increases the Australian duration overweight and underweights New Zealand, expecting convergence after Australia has delivered 75 basis points of tightening and New Zealand has returned to accommodative policy.
• It remains moderately positive on emerging-market hard-currency sovereigns, local debt and corporates, but notes that sovereign and corporate spreads are near their tightest levels since 2007 and prefers selected high-yield sovereigns.
• It remains positive on the yen as potential domestic investment flows, tighter Bank of Japan policy and changing positioning add support; markets price roughly 90 basis points of hikes over the next year, versus 70 basis points a month earlier.
• It reduces credit risk as autumn supply meets tight spreads, noting that hyperscalers, data centres and semiconductor companies have issued around $250 billion this year; Alphabet’s August five-year issue paid an 18-basis-point concession versus 10 basis points in February.

Takeaway: The recommended stance is selectively constructive on intermediate government bonds, the yen and parts of emerging-market debt, but cautious on long-duration Treasuries, high yield and heavily financing-dependent technology borrowers because supply, refinancing and term-premium risks could limit returns.