One of the main risks for 2026 continues to be a change in direction by central banks, with particular attention on Japan
12 DEC, 2025
By Mutualidad
Pedro del Pozo, Director of Financial Investments, Mutualidad
Fixed income markets have gone through weeks of high volatility, the result of an especially complex year in 2025 for this asset class. Yields have risen, which usually translates into price declines, but we have also seen a normalization of yield curves, which can be interpreted as a healthy signal after the distortions of previous years. Private debt, for its part, has shown solid performance, with credit spreads at minimum levels, in line with the generally positive tone of equity markets, especially in the United States.
Looking ahead to 2026, fixed income is shaping up as one of the asset classes to watch most closely. We believe we are entering a more attractive environment for investing in debt. It is true that the U.S. Treasury yield has recently risen to around 4.20%—levels not seen since September—and that this year it has fluctuated between lows of 3.95% and highs of 4.80%. Although we are far from those highs, the correction has been limited, reflecting the persistence of certain tensions in the market. In the U.S., interest rates remain higher than in Europe, and fiscal constraints—with a significant deficit—together with inflation still close to 3%, impose clear limits on monetary policy.
One of the main risks for 2026 continues to be a potential change in direction by central banks. In particular, in the United States, if inflation data were to surprise to the upside, we could see the market revising its expectations, even pricing in future rate hikes. This risk of a cycle reversal is perhaps the main source of uncertainty for the coming months.
At the same time, special attention should be paid to the role Japan could begin to play in this new global environment. After decades characterized by ultra-low interest rates and massive purchases of foreign debt—especially U.S. debt—the tightening of its monetary policy introduces a significant structural shift. The Japanese yield curve is beginning to steepen: two-year rates are already around 1%, and ten-year rates are close to 1.9%. Although these levels remain moderate by international standards, they represent an important change for a country traditionally characterized by its role as a net buyer of global debt. If Japanese investors now choose to focus on their domestic market, this could significantly reduce international demand for bonds—especially U.S. Treasuries—introducing greater market volatility.
As for the European market, from our point of view, certain factors that had limited visibility for the small- and mid-cap segment are beginning to clear. The gradual fading of tariff impacts, a somewhat weaker U.S. dollar, and more favorable comparisons make it possible to anticipate a recovery in margins for exporting companies. In addition, in a scenario of modest economic reactivation in Europe and momentum from strategic sectors such as infrastructure and defense—with the capacity to spread stimulus across overall activity—we believe European small-cap companies could benefit in 2026.
In this regard, it is worth highlighting that in Europe, and particularly in Spain, large companies have posted extraordinarily strong performance this year, benefiting from their positioning in key sectors and from an environment that remains favorable for earnings. However, in a more stabilized environment, with a more “real” economy—such as the one that could take shape in 2026—small and mid-sized companies, traditionally more exposed to the economic cycle, could take on a more prominent role. If growth holds up and an unexpected surge in inflation or a reversal in the interest-rate cycle is avoided, the backdrop could be favorable for these stocks, which have lagged in recent years.
Naturally, risks remain: a resurgence of trade tensions, an unexpected slowdown in global growth, or a new inflationary spike could alter this scenario. But overall, the message is one of cautious optimism: fixed income offers increasing opportunities, and European small-cap companies, including those in Spain, could regain prominence if stabilization in the economic and financial environment is confirmed.
