Where to invest in fixed income in the second half of 2026
Where to invest in fixed income in 2026 is less obvious today than a year ago. The energy shock linked to the conflict in the Middle East, the more persistent inflation than expected, and the deteriorated fiscal trajectories of advanced economies have eroded the hedging function of government bonds, pushing management companies to focus their convictions on specific segments rather than on a generic allocation to fixed income.
From European banking credit to intermediate duration, from the capex cycle of artificial intelligence to emerging debt in local currency, a rather precise map emerges of where the best paid yield is today.
Where to invest in fixed income in 2026: the map of convictions
| Segment | Motivation |
|---|---|
| European banking and IG credit | Strengthened asset base, net emissions close to zero, demand exceeding supply (Banor, Indosuez) |
| Intermediate duration (5-10 years) and global government | Starting yields around 4.75% on the Global Aggregate, room for capital gains in a future recession (PIMCO) |
| Short/intermediate maturities Euro Area | Inflationary shock already largely incorporated in prices (Indosuez) |
| Inflation-linked bonds and real assets (incl. gold) | Cover thicker tails of inflation, in a context where traditional governments protect less than before (PIMCO, Amundi) |
| Emerging debt in local currency | Real yields at decade highs, benefit from a structurally weaker dollar (PIMCO, Indosuez, Amundi) |
Source: own elaboration on Banor (Market Outlook II semester 2026), PIMCO (Secular Outlook, June 2026), Amundi (press note, June 30, 2026) and Indosuez WM (Adrien Roure, June 2026).
Why government bonds have lost their role as a refuge
Bruno Lamoral, Portfolio Manager Institutional Mandates at DPAM, traces the origin of the problem: the correlation between stocks and bonds, negative for most of the century, has turned positive in the 2000s due to repeated inflationary shocks, from the post-Covid reopening to the invasion of Ukraine, up to the current energy shock in the Middle East. This is why the traditional 60/40 portfolio no longer offers the same protection as before.
Adrien Roure, Multi-Asset Portfolio Manager at Indosuez WM, directly observes: sovereign securities no longer play their role as safe havens, penalized by deteriorated fiscal trajectories in the main developed economies. Consistent with this reading, Banor notes that the real ten-year American has moved sharply upwards, followed by real rates in the rest of the developed economies: a signal that the market considers the real equilibrium rate higher than estimated a few months ago.
Behind this movement, according to Banor, there is a growing American "K" shaped growth, driven by families with income over 125 thousand dollars, while the middle class retreats. It is robust growth at the aggregate level but less inclusive, and it is precisely this robustness that prevents real rates from falling, reducing the room for a return of government securities to the role of automatic coverage.
Duration: tactical caution today, strategic conviction in five years
Between the end of 2025 and the beginning of 2026, the market still priced about two Fed rate cuts in the year. Today, according to Banor, it no longer discounts any, and there is open discussion about the possibility that the next move will be upwards. Indosuez consistently maintains a low sensitivity to rates in diversified portfolios, while signaling a tactical opportunity on the short and intermediate maturities of the Euro Area, which would have already incorporated a good part of the inflationary shock.
Andrew Balls, Chief Investment Officer for PIMCO's global fixed income, looks instead at a five-year horizon and sees the opposite picture. The five-ten year segment of the global curves offers, according to PIMCO, the best balance between yield, roll-down and risk, preferable to both short-term monetary and the long part of the curve, where fiscal dynamics require caution. The starting yields, about 4.75% on the Bloomberg Global Aggregate as of June 4, 2026, remain historically compelling.
PIMCO's thesis also relies on a statistical argument: since the second post-war period, the historical frequency of American recessions over five-year periods has been 69%. Central banks today have more room to maneuver on traditional rates compared to the pre-pandemic decade, and an actively managed bond portfolio can offer capital gains precisely in a future contraction, in addition to the coupon flow. It is therefore not a contradiction with the tactical caution of Banor and Indosuez, but a reading on a different horizon.
Bank credit and European investment grade: where quality is concentrated
According to Banor, bank bonds today start from a more solid capital base compared to the last fifteen years, with a volume of net issues close to zero, or even slightly contracting: a combination that makes bank issues relatively appealing and scarce. It's the area with the highest conviction among the sources analyzed.
Roure (Indosuez) confirms the same direction on the corporate credit front: favorable view on quality European debt, supported by solid technical fundamentals and a constant demand from investors in search of yield. More cautious instead on the dollar investment grade, penalized by the increasing concentration of issues in the technology sector, which according to the house could represent a medium-term vulnerability.
AI infrastructure redesigns corporate credit
The most concrete data comes from Banor: in 2025 five hyperscalers, Amazon, Alphabet, Meta, Microsoft and Oracle, issued 121 billion dollars of corporate bonds, against an average of 28 billion a year in the previous five years. For 2026, UBS estimates indicate about 360 billion dollars of tech investment grade issues, almost a fifth of the total US IG market. It is no longer an idiosyncratic phenomenon, but a macroeconomic phenomenon.
PIMCO frames the same phenomenon on a larger scale: investments in AI infrastructure, defense and energy security could contribute 14,000 billion dollars to global capital expenditure in the next five years, of which 7,600 billion can be attributed to AI infrastructure alone. It's an increase in investments equivalent to about an eighth of global GDP, according to PIMCO and IMF estimates from May 2026.
The average investment grade spread remains around 75 basis points, but according to Banor, the CDS of Meta, Amazon and Microsoft widened in 2026: the market does not price default risk, but signals that capital is no longer free even for AI champions. Banor draws a parallel with the telecoms of the late Nineties: then they financed fiber and 3G, today chips, data centers and energy, with the difference that the logic of the cycle, when a sector becomes the great marginal absorber of capital, remains the same.
Inflation-linked bonds and real assets
Monica Defend, Head of Amundi Investment Institute, summarizes the challenge of the semester as follows: "the independence of central banks is being tested, inflation is more volatile". Amundi indicates a preference for inflation-linked bonds along with an exposure to real assets and gold, in a context where the hedging role of traditional fixed income is less reliable and traditional correlations, according to Vincent Mortier, Group CIO of the house, may not hold.
PIMCO shares the logic: with thicker distribution tails on inflation outcomes, indexed bonds and some selected real assets can offer a significant buffer against volatility. Gold, according to PIMCO, has continued to serve as a neutral reserve of value in a world of partial trust in currencies, a theme that ties into the structural decline of the dollar as a reserve of value, which has fallen from about 70% of global reserves at the beginning of the century to about 40% today according to DPAM.
Emerging debt in local currency: the less obvious yield
PIMCO points out that the starting yields on emerging debt, both in local and strong currency, are the most compelling in over a decade, with a potential weakness of the dollar on the secular horizon that historically favors this segment more than any other factor. The firm also highlights a less obvious advantage: exposure to emerging markets can offer today a genuine hedge against risks emanating from the same developed markets, not just an additional source of return.
Indosuez confirms the interesting profile of emerging debt in local currency thanks to high real yields, while pointing out exposure to episodes of volatility in the current context. Amundi aligns with this view, with a preference for commodity exporters, a neutral stance on China and positive on India, whose story of structural growth remains intact despite vulnerability to the oil shock.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax or legal advice, nor an offer to buy or sell financial instruments. The opinions expressed reflect the assessments of Banor, PIMCO, Amundi, DPAM and Indosuez Wealth Management at the date of publication of their respective documents and are subject to change without notice. Past performance is not a guarantee of future results. Investing in bonds involves risks, including interest rate risk, credit risk, issuer risk, liquidity risk and exchange risk for instruments denominated in foreign currency.
