Fixed Income Forward August 2026

Carry wins in an AI-led market “Machines take me by surprise with great frequency.” – Alan Turing

What happened in July Key takeaways July was marked by volatility in oil markets and AI-related equities. Renewed • Carry cushioned the AI shock. tensions in the Middle East pushed Brent crude back above USD 100 per barrel. While semiconductor equities As geopolitical concerns eased, focus shifted to second-quarter earnings. A fell over 20% in July, global high selloff in semiconductor stocks was amplified by the unwinding of leveraged yield declined just 0.3% (source: single-stock exchange-traded funds and hedge fund positions, while higher Bloomberg, August 2026). This energy prices and resilient economic data drove bond yields higher. Major shows the resilience and shock- central banks kept policy rates unchanged but maintained a hawkish stance. absorbing power of income. The month ended with a bang in currency markets, as US-Japan intervention • AI remains the megatrend, but sought to halt the yen's slide after it reached a 40-year low against the dollar1. fundamentals matter more. Our take and investment implications The next phase will be driven less by spending and more by With nearly USD 500 billion of outstanding bonds from the top AI giants, or returns: capital discipline, hyperscalers, and another USD 100 billion linked to data centres (source: balance-sheet strength and the Bloomberg, August 2026), AI has become an important segment of the global ability to earn an attractive credit market. July's AI-driven equity sell-off spilled into credit markets, leading return on invested capital. to wider spreads for hyperscaler and data centre issuers. But we are not overly • The case for active is stronger concerned and view the weakness as an opportunity to add selectively to than ever. With rates, policy issuers where we have strong conviction in the underlying credit story. paths and growth cycles increasingly diverging, investors History suggests every transformative technology undergoes at least one full need global flexibility, capex cycle. In the 1990s telecom boom, massive investment in fibre disciplined risk-taking and infrastructure raced ahead of demand, ultimately resulting in high-profile active management to capture failures. Being right too early, and too leveraged, proved costly. We believe AI opportunities and navigate is likely to follow a similar, though not identical, path. The biggest casualties volatility. typically lie with overleveraged players, late entrants, and businesses lacking scale or competitive advantage or clear differentiation.

As credit investors, our approach is consistent: we are fundamentally driven, conduct independent research, maintain a selective investment process, and Jenny Zeng apply disciplined risk management. We remain positive on the top CIO Fixed Income hyperscalers. Despite spread widening due to issuance indigestion and technical market pressures, their strong balance sheets, diversified business models and substantial rating headroom continue to support resilient credit Georgios Georgiou profiles. In data centres, we favour issuers backed by long-term contracts Head Fixed Income Product Specialists with investment-grade hyperscalers, clear paths to project completion, and strong visibility on free cash flow generation and deleveraging.

1 Source: Bloomberg, August 2026.

” FIXED INCOME FORWARD | AUGUST 2026

Away from AI, volatility across fixed income markets is driven more by rates (duration) risk than by credit (spread) risk, reinforcing our preference for tactical and relative value trades in core rates over large directional bets. Yield curve trades, which seek to capture differing moves across maturities, remain one of our There are far greater preferred sources of alpha. We favour steepeners across major sovereign bond markets, although the investment rationale differs by region. Diverging contexts secular forces not only support steeper curves but also create relative value opportunities. driving market In a reflationary world with higher interest rates, a global multi-strategy returns and approach that identifies resilience and alpha opportunities across fixed income…