Monthly commentary - Mackenzie Fixed Income Team

Fixed Income market update

Fixed income markets continue to be influenced by more than the near-term path of central-bank policy. Artificial-intelligence-related capital spending remains an important source of U.S. economic activity, with significant investment in data centres, power infrastructure and computing capacity. While the absolute level of investment remains elevated, the pace of growth may be approaching a peak as the build-out matures. For now, the investment cycle remains more visible as a source of demand than as a productivity benefit, as infrastructure must first be financed and constructed before efficiency gains can be realized. This has supported economic growth, while also adding to inflation pressures and corporate financing requirements. Hyperscalers have issued significant debt across the curve, including at longer maturities, creating an additional source of duration supply alongside U.S. Treasury issuance.

The Federal Reserve raised rates in September, reinforcing the continued importance of inflation in the policy outlook. However, monetary policy is only one factor influencing global bond markets. Corporate bond issuance, energy prices and persistent inflation concerns have also contributed to higher yields. The team does not view the recent increase in bond yields as evidence of disorderly market conditions. The move has occurred without a corresponding increase in volatility or a broader deterioration in fixed income market functioning. In the team’s assessment, the rise in yields increasingly reflects changing valuations and supply-and-demand dynamics rather than market panic.

This distinction is important for portfolio positioning. As nominal and real yields have moved higher, the compensation available for taking duration risk has improved. At current levels, particularly in the U.S., the team believes valuations have become sufficiently attractive to add duration rather than remain broadly defensive.

Fund positioning

Against this backdrop, the funds are overweight duration overall, with the strongest conviction in the U.S. A significant overweight to U.S. duration drives the broader duration overweight across portfolios. The position is expressed primarily through inflation-linked bonds, where the team views U.S. real yields around 3% as an attractive entry point.

The shift reflects both valuation and the nature of the recent increase in yields. The team does not interpret higher long-end and real yields as a signal of market stress. Rather, as yields have risen without a material increase in volatility or deterioration in market functioning, the prospective return available from holding duration has improved. There is ultimately a level at which higher yields provide sufficient compensation for the underlying risks, and the team believes U.S. markets are increasingly reaching that point.

The team also sees potential technical support for the long end of the U.S. Treasury curve from Treasury buybacks, particularly in the 10-, 20- and 30-year sectors. While these operations do not remove the risks associated with inflation, fiscal issuance or increased corporate supply, the team views the expansion of buybacks as an important development for market liquidity and long-end demand.

Outside the U.S., positioning reflects selective relative-value opportunities rather than a broad regional duration view. In certain mandates, the team is modestly long Japanese duration and short French bonds, expressing a preference for Japanese fixed income relative to France.

Credit market performance

U.S. below-investment-grade credit delivered positive returns in August. The Morningstar LSTA U.S. Leveraged Loan Index returned 0.93%, improving on July as software loans rebounded. The recovery reduced the software sector’s year-to-date loss to 2.60% and narrowed its performance gap with the broader loan market.

High-yield bonds also produced positive returns during the month. Public month-end data for the Bloomberg U.S. Corporate High Yield Index indicate a 0.97% August return, while option-adjusted spreads tightened to approximately 261 basis points. The combination of spread tightening in high yield and the rebound in software-related loans represented an improvement from July, when the floating-rate structure of leveraged loans provided greater protection from rising government bond yields.

Despite stronger index-level performance, dispersion remains important. The rebound in leveraged loans was supported by a sector that had been a significant source of weakness earlier in the year, while high-yield spreads ended August at relatively compressed levels. The team therefore continues to emphasize security selection and income rather than materially increasing broad lower-quality credit exposure.

^{Source: Bloomberg as of 31st August 2026, performance is reflective of local returns}

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