Mark Dowding: 2025 was quite a good year for US fixed income markets. Treasuries had their best year since 2020 on the back of interest rates moving lower through the course of the year. At the same time, we saw relatively robust economic growth, and this was a factor that helped corporate credit to deliver outperformance with spreads moving tighter, both for IG corporate bonds as well as bonds in high yield.

Moving to European fixed income markets, it wasn’t such a strong year. Here, on the back of fiscal expansion plans announced by Germany back in the first quarter, we saw German Bund yields move higher, and index returns didn’t really cover from this particular shift. Indeed, over the course of the year, we’ve seen yield curves moving steeper, again, partly driven by changes around demand in fixed income, which seemed to be seeking more credit exposure, less durations exposure.

This was something characterized in the recent shift around Dutch pension fund legislation. Elsewhere in Europe, we have seen French spreads deteriorate over the course of the year. France continues to be a country that lives beyond its means. Political volatility is never too far from the surface. Though at the same time, I would note that the volatility in spreads remains relatively contained this side of an election in 2027.

Otherwise, politics was also a factor weighing on gilt yields. Here we’ve seen longer-dated gilts struggle for much of the year against a backdrop of uncertainty in terms of policy credibility, in terms of the Starmer government with Rachel Reeves as Chancellor. That said, we have seen interest rates coming down on the part of the Bank of England.

Again, this has been a narrative that has ended up driving a steeper yield curve through the course of the year.

Otherwise, in Japan, a rather different narrative, a stronger one, economically speaking, an economic narrative that has seen the Bank of Japan raise interest rates. Again, politics has been incredibly important. We’ve just seen the installation of the first female Prime Minister in Japan. Sanae Takaichi has come into office really looking to press the accelerator further in terms of policies with respect to reflation in the economy. This is continuing to push yields up. It’s also driving the yield curve steeper, maybe on the back of some inflationary concerns. Again, another reminder this year, if we need it one, that policy and politics can be a big force driving fixed income markets.

Against that, you might say it’s actually surprising that the US has been as well-behaved as it is given the expected angst, and concern with respect to the Trump policy agenda. That said, when it comes to things like tariffs, whilst there’s a scope for that to have been very disruptive, if we saw a full-blown trade war, you would say that, relatively speaking, the introduction of those tariffs has been relatively uncontentious, or certainly not contested over the course of past months. On the back of that, that’s another narrative that actually has, again, created a relatively benign backdrop in global financial markets.

There was a moment earlier in the year where we were asking questions around the death of the dollar, where we’re seeing a major turn weaker in the US dollar on the

back of some of the policies of the US administration. That would reflect that notwithstanding a weakening move that occurred in March and April, in the last six months, the dollar has been more or less tracking sideways. It hasn't really been a year where currencies per se have been the front, and center of attention in markets. Maybe there’s much more focus, much more interest and excitement when it came to the topic of equities, AI, and bubbles. Otherwise, in fixed income, a solid market year all round, you would suggest.

Now looking into 2026, we will continue to contend that the US economy continues to maintain good momentum. We’ve seen growth on a strong footing towards the end of 2025. As we look into next year, we see the benefits coming from rates, cuts, tax cuts, and deregulation, also providing an economic tailwind. Furthermore, AI spend, which was anticipated to total 75 billion in the course of 2025, is expected to accelerate as much as 300 billion in the course of the year ahead.

With that much money being thrown at the economy, with those sorts of tailwinds, we are looking for another relatively strong year of US economic growth. At the same time, we’re looking for somewhat higher inflation. This means that the backdrop is for really pretty strong nominal GDP growth. Against that backdrop, we would contend that, having seen interest rates come down in the last several months, the Fed doesn’t need to be in the business of cutting rates further. Of course, it’s possible that there will be further reductions, particularly if the labor market is weak, and also if Donald Trump wants to press his agenda on a new Fed Chair, trying to influence the need for lower interest rates.

Though at that particular point, you would note that actually, for the Republican Party, containing inflation is going to be very important if affordability is not going to come back once again when it comes to the midterm elections. From that perspective, my own take looking into 2026 is maybe that you will see fewer rate cuts delivered by the Federal Reserve than are currently discounted. That’s largely on the basis of a more upbeat economic view that I think many in the market have.

Elsewhere, if I move to the European region, here we think that things are also going to be relatively dull. Although the European economy looks to be relatively weak, we don’t see rate cuts being delivered at a time when fiscal policy is also moving easier. From that perspective, with fewer rate cuts on the table, we’re largely looking at longer-dated bond yields more or less going sideways in the US, and in the Eurozone in terms of the year ahead, and so maybe government bonds delivering returns, not too dissimilar to cash.

All of that said, when it comes to credit, we would highlight that this backdrop for relatively robust economic growth is an environment where credit can continue to perform. Credit does well when recession risk is low, as it currently is. It struggles, of course, when recession risk is more prevalent. We push back against some of these assertions that we’re looking at cockroaches in the credit market, with individual credit stories going bad. Yes, we’ve seen a couple of examples of corporate default, but these are more isolated. The sort of things we saw with Enron and WorldCom back in 2003. Generally speaking, we think that credit markets look, relatively speaking, okay to us. From that point of view, we think that we're going to see excess returns through carry, because, yes, spreads are already very tight. It’s going to be difficult for them to go tighter still. Carry is, I think, where we see returns being driven. Otherwise, we like subordinated financials. We like safe carry in high-quality CLO tranches.

Looking at other fixed income markets, I would say that if we have an outcome which looks a little bit more sideways, a little bit more uninteresting when it comes to the dollar market, or in the Eurozone region, I would say that in both Japan, and in the UK, these are markets that look like there could be a lot more macro volatility, a lot more political volatility ahead. We think that, again, as we’ve seen over the course of the past year, changes developments in policy and politics will provide ample opportunity for investors to deliver returns through active management. These were some of the things that I’m excited about as I look into the year ahead.

Tim Ash: 2025, from a geopolitical standpoint, I guess, was inevitably shaped by the Trump presidency. There’s a lot of uncertainty, really, in terms of how countries deal with the Trump administration. You never quite know where Trump’s going to come at you, but I guess a lesson from ‘25 has been, in the midst of all that, good policy is a key anchor. The past year, surprisingly, despite all the geopolitical challenges, has been really positive for emerging markets.

That was due partly to dollar weakness earlier in the year. Many central banks in emerging markets reacted very proactively to the post-COVID inflation push. Rates were very high coming into this period of uncertainty. Then we had the weak dollar impacting and helping support currencies in emerging markets and that actually created a very favourable fixed income story. Central banks were able to cut rates against a backdrop of weaker global growth because of the geopolitical uncertainties.

We’ve seen very strong performance in emerging markets, local markets, in particular, first time in many years. The other part of that story, I think, was that amidst recent years of geopolitical uncertainty, we’ve seen a back to fundamentals almost in emerging markets, focus on good policy. We’ve seen it across a range of emerging market countries, from Argentina to Turkey, Egypt, Pakistan, and then we’ve had lots of restructuring stories actually in emerging markets that have reached a conclusion in Sri Lanka, Ghana, Zambia, Ukraine, etc.

Again, that’s provided a pretty positive backdrop for the year that’s just gone. And I think likely it will set the same kind of scene for the year that’s ahead. Countries will be very careful in a challenging geopolitical environment, not to make mistakes at home. And that should see improving fundamentals across emerging markets, which bodes well for the performance of the asset class in the year ahead.

Certainly, for 2026, unfortunately, the outlook’s pretty similar in terms of what is Trump going to do next, which country is he going to focus on? The world is dividing in terms of this Trump friend or foe scenario. Countries that have struggled with the relationship have had difficulties. South Africa, Brazil, maybe we’ll see those countries try and improve that relationship with the Trump administration. In the friend camp, the Orbán administration in Hungary, faces very difficult elections.

The opposition are riding high in the opinion polls. Orbán has faced problems in terms of financing from the European Union, but Trump probably is going to come in behind Orbán, provide something of a backstop. There’s already been talk of a financial support programme for Hungary in a worst-case scenario. And actually, it’s interesting in Hungary, we have, in a way, the European Union playing off against the Trump administration, and Orbán playing on that to his advantage. It’ll be interesting to see how those elections play out in the end.

The war in Ukraine will continue to be a focus for 2026, and the focus there on potential peace prospects. At the moment, I do worry that the market’s got itself into a comfort zone around the war, and that the stalemate on the front lines has no global market impact. What we’re seeing actually is the important role of technology, drones in particular. I worry that one side could gain a technological advantage that could be a game-changer on the battlefield.

Now, that could either be Ukraine or Russia, but it could have potential significant global impact. Obviously, if Russia wins, it’s very bad news for Europe. It would mean that much bigger budget spending on defense, higher borrowing requirements, pressure perhaps on the Euro, and also borrowing rates in Europe. Ukraine could become a bit more ambitious in terms of what it hits in terms of targets in Russia. We’ve seen that this year, actually, with a focus on oil refineries, but we could see attacks on critical infrastructure in Russia. Russia is a major commodity exporter, and that could actually impact on global markets. So I’d certainly watch the war in Ukraine. I don’t think it’s necessarily a stable status quo at the moment. I think things could move fairly quickly there.

Andrzej Skiba: It’s been a rollercoaster ride for US fixed income investors in 2025. It’s ending, however, on a positive note. Strong positive total returns were helped by both a rally in US Treasuries as well as by a tightening of credit spreads, in some cases to multi-year lows.

Back in April, when President Trump announced aggressive trade tariffs, a complacent market gasped in disbelief, sending asset prices lower across the board. Since then, a clear easing of trade tensions, the passing of the US budget and a resilient labor market and the economy helped to reverse all of these losses.

As we look towards 2026, we see a strong total return outlook ahead, helped by accelerating US growth, still elevated yields, spread compression and a potential, though not a given, for more Fed rate cuts. We see high single digit returns in $ terms as a possibility, with the bulk of the number coming from carry income based on the current yield of the asset class.

A key theme for 2026 is likely to revolve around record credit supply and questions whether that can be matched by record investor demand. On the one hand, we see record M&A issuance coupled with exploding AI-linked debt supply. On the other, we expect some of the $7 trillion money market balances being invested further out the curve, helping to balance the market.

Finally, we expect to see an increase in return dispersion across both credit and securitized markets as investors reflect on disparities in the health of consumers across the income cohorts and some business models facing acute secular challenges. This is great news for active investors as, beyond themes like compression, generating alpha could be to do with identifying haves and have nots across our investment universe.

Polina Kurdyavko: 2025 has been a strong year for emerging market fixed income. We have seen hard currency sovereign debt delivering mid-teen returns, and local currency sovereign debt being amongst the best performers within the asset class, delivering high teens in terms of return. Both coming from rates component and FX component. This strong performance has been supported by three underlying themes that we continue to see playing out next year. Monetary policy orthodoxy, geopolitical support for select countries or regions, and last, but not least, the fundamental strength of emerging market economies.

Let me share with you what do we expect from these themes in 2026. Monetary policy orthodoxy remains the key factor underpinning debt sustainability in emerging markets. Over 90% of all debt in emerging market fixed income is issued in local currency. In fact, local currency market is equivalent to the size of the US Treasury market. That, on one hand, reduces vulnerability in emerging market hard currency issuance.

On the other hand, provides interesting opportunities for investors to generate attractive total returns by accessing local currency markets, which today not only offer highest real yields, i.e., the differential between EM rates and US rates over the last decade, but also have attractive effects valuation levels, which on a three-year decade view is still very much at the bottom of the trading range, vis-à-vis the dollar.

The second factor is geopolitical alliances. We've seen big shifts in emerging market geopolitical stance through the course of this year, which we are likely to continue playing out next year. In particular, the main region that benefited from the new US administration is Latin America, where Donald Trump views this region as strategic and wants to do whatever it takes to support its own backyard, so to say, through economic and political assistance. Especially when it comes to the countries that have aligned presidents with Donald Trump thinking.

Knowing that we have elections in countries like Colombia and Brazil next year, we could see further positive momentum as their leadership changes to a more market friendly one. Last but not least, is the expectation of default outlook. Broadly speaking, we expect low defaults in emerging markets, in particular in the sovereign space, we would expect default rates to be sub 1%, while in the corporate space, we would expect defaults to be in the mid single digits. We think fundamentally, emerging market continues to benefit from two main factors.

Firstly, relatively low debt leverage, vis-à-vis GDP, compared to developed economies. And secondly, quite low fiscal deficit on a relative basis. Moreover, we expect fiscal deficit to contract, generically speaking, in emerging markets over the next three to four years. Last but not least, some countries, in particular in frontier economies, still require support, and we think debt sustainability in certain countries could be challenged. But these are the areas where we see as alpha opportunities. We also expect these type of issues to drive more ESG-linked issuance, as investors are paying a lot more attention to transparency and the use of proceeds.

Overall, we believe 2026 will be a very interesting year, where emerging markets can be used as a source of alpha, with relatively low correlation between each other. Therefore, we encourage investors to look at different emerging market strategies to address particular concern in their portfolio, rather than looking at the asset class as an asset class they want to invest, or don't want to invest in. Ultimately, we have the full breadth of solutions for investors using emerging markets sources of alpha, both in relative return and absolute return.

Laurence Bensafi: Emerging market equities have done very well so far this year, doubling the performance of the S&P 500. There were three main drivers. Number one, China is back. Thanks to DeepSeek, the country showed the world it is probably not as far behind as thought in the AI race. Number two, the strong performance of names exposed to the AI theme in Korea and Taiwan. IT is now by far the biggest sector in emerging markets as the entire AI manufacturing chain is located in Asia. Number three, Liberation Day, at the beginning of April, the tariffs announcement backfired as it exposed the dependence of the US to many countries, most notably to emerging markets for imports. EM equities were very cheap and under owned, helping to fuel a large rally.

Looking into 2026, we believe that we are at a turning point for emerging market equities that are about to be valued at their true worth and to have the place they deserve in equity portfolios. A place that was important but which has been greatly reduced because the asset class has underperformed for a long time in an environment of strong earnings growth in the US, with also a very strong US dollar.

However, when we take a closer look, developed countries are increasingly resembling the emerging markets of the past, political instability, high deficits, high debt, high inflation. Emerging market countries have, in the meantime, used globalisation and a deindustrialisation of developed countries to their advantage. Many reforms have also been implemented. And the result is that the majority of emerging market countries now have half the debt and deficits of developed countries. After the strong recent performance and to sustain the rally over the long term, we would need to see higher returns on equities and faster earnings growth.

They are both currently lower in emerging markets than in the US. We, however, believe that the trend has been improving recently and will continue to do so as reform to generate better shareholder returns have been announced in several countries. For instance, with the value-up programme in Korea, the market has risen 100% this year, as the new government has announced that its number one priority is to improve the quality of corporates. In China, share buybacks hardly existed, and are very common, so we're going in the right direction. In China, another driver for improving returns would be to tackle overcapacity and lower the saving rate.

Few of those improvements are priced in with many opportunities in the asset class, notably in the Quality and Value segments. China remains attractively valued. In terms of sector, there are many opportunities in Financials and Consumer Staples that are very undervalued. In summary, emerging markets equities are very well positioned, but they also have to deliver, especially earnings growth and better profitability, for a sustained long-term rally. The foundations are solid, but in the next few years, execution will be key.

Adam Phillips: In European Special Situations, we continue to see many of the same themes that we saw in 2023 and 2024. Lots of companies in Europe have continued to struggle with excess leverage, higher interest rates, higher energy and gas prices, lower margins, and, of course, newly imposed US tariffs. The opportunity set in European Special Situations has expanded significantly in 2025, particularly in the second half of the year. This is mainly because companies that had enough liquidity to maintain operations until 2025 are beginning to run out of cash or have debt maturities that they need to address in the short term.

As a result, we have seen a lot of activity in stressed, distressed, and event-driven strategies, particularly in the mid-market space, where companies are generally unable to borrow money from banks or raise money in the capital markets. As well as more traditional restructuring solutions, such as amend and extend transactions or full-blown restructurings, we've seen more use of LMEs and shareholder on creditor or creditor-on-creditor violence than in previous years, but it's worth noting that this is primarily in situations involving larger cap structures.

For 2026, in an environment where most European economies are stagnating and there is a move towards fiscal tightening, we expect more of the same as companies run out of cash and search for capital structure solutions. Restructuring advisors and lawyers certainly believe that 2026 is going to be a bumper year for restructuring activity. Across Europe generally, we expect to see lots of opportunities across a very broad spectrum of companies. But in particular, it seems to us that the chemicals, paper and packaging, and auto parts sectors are particularly in focus.

In terms of the geographical distribution of these opportunities, we expect to see a lot of opportunities in the UK, France, and Germany, but we think the focus will remain on the German mid-market. It is our view that we are in the early stages of the restructuring cycle in Germany. We do expect the German economy to pick up over time as the one trillion of defense and infrastructure spending falls into place, but we believe this is going to take a number of years to take full effect, so expect to see lots of opportunities over the next three to five years.

Tom Mowl: Securitized Credit has delivered another year of strong risk-adjusted performance and attractive excess returns compared to corporate bonds and other fixed income asset classes; a trend that now goes back over a very long period of time. The asset class continues to demonstrate strength and resilience, underpinned by robust fundamentals and strong investor demand. Despite pockets of weakness in a few select areas, such as increased delinquencies in non-prime consumer focus sectors and single-name events in corporate credit, Securitized Credit has proven extremely resilient.

The high quality, diverse underlying collateral and strong structures have shielded investments, showcasing the strong fundamentals and inherent strength of the asset class. 2025 was yet another year where we saw significantly more upgrades than downgrades; a trend that has continued for over a decade now. The ratio of upgrades versus downgrades in Securitized Credit remains significantly higher than corporates, driven by the combination of strong fundamentals and de-leveraging properties of the asset class.

Throughout the year, periods of elevated primary market supply, particularly in European CLOs and ABS, presented active managers with attractive entry points. For example, over the summer months, we saw CLO primary single A spreads widen to a similar level as the BB European High Yield Index. This is an example of another technical-driven spread widening that we periodically see in the Securitized Credit markets, and allows active managers such as ourselves to add value in portfolios through security selection and asset allocation rotation.

Overall, 2025 has been another year of attractive risk-adjusted returns for Securitized Credit, and the benefits of both the asset class and active strategies in this space remains appealing for the year ahead.

Our outlook for Securitized Credit in 2026 is positive. The benefits of the asset class remain as compelling as ever, with high credit quality and significant protection from defaults, even under stress scenarios, providing a very solid foundation. This is particularly relevant as we have seen an increase in single-name credit events, so the protection from rising defaults afforded by securitization is a crucial benefit. At the same time, Securitized Credit continues to offer attractive spreads, both in absolute terms and relative to corporates, which further enhances its appeal.

The asset class has low correlation to traditional fixed income and equities and is predominantly floating rate, and offers the flexibility to focus on shorter spread durations, which is a key benefit in periods of market volatility. Beyond these inherent advantages, we believe active managers can generate alpha in both volatile

and benign market environments due to the ability to rotate between asset classes, ratings, and spread durations.

Actively managed portfolios can capitalise on market opportunities, such as those driven by high levels of supply, and navigate challenges effectively; something that we believe we have done very successfully in 2025 and over the longer term. As we move forward, Securitized Credit stands out as a resilient asset class, offering protection from idiosyncratic events, attractive excess returns, and alpha opportunities for active investors.

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The strategy presented relates to speculative investments subject to many specific risks notably the risk of loss of the entire amount invested. Among others, interest rates risks, market conditions risks, reinvestment risks, currency risks, liquidity risks apply. Please contact RBC GAM for more information on the risks.

Findlay Franklin: 2025 has been a strong year for risk assets, and fixed income has been no different. That said, if you were to sit here today and look across the year-to-date returns for a spectrum of different asset classes, you'd be forgiven for thinking that it had been a relatively easy year for PM’s. The reality of sitting in the seat has been entirely different, and this year has been anything but easy. We have navigated a gauntlet of volatility the year-end numbers just don't capture. Think back to the shock release of DeepSeek in January, that cheaper yet entirely competent Chinese model that completely reset the capex narrative for US tech. Then we had the Liberation Day tariff announcement in April, which whipsawed the entire macro landscape, followed by fresh escalation in the Middle East in the early summer.

We spent 11 months dodging rotations, mixing both micro and macro narratives. In that context, being able to cast the net widely across a number of credit asset classes has allowed investors to weather the storm well across Multi-Asset Credit, protecting to the downside, but then capturing those updrafts and capturing that carry to deliver a year of strong absolute returns despite those headlines.

Two areas really stand out for us this year. First, emerging markets. It's been a tale of two cities here. On the local side, we saw a breakdown in the dollar dominance earlier in the year, combined with powerful deflationary forces across EM economies that gave central banks the green light to cut rates more aggressively, driving local returns to their best year in recent memory. On the hard currency side, it wasn't necessarily a beta trade. It was a stock picker's market. The returns at least that we saw came from high conviction, bottom-up name selection in specific idiosyncratic stories. Think Argentina, Lebanon, or Colombia.

The second standout has been convertible bonds. Converts have done exactly what they're designed to do. They provide investors convexity, capturing the upside in the AI sector across both the US and in Asia, but offered a floor when equity valuations got shakier. We also saw a record year of issuance, which kept the market liquid and full of opportunities. If you're looking for a risk-adjusted return, convertibles have delivered arguably the highest Sharpe ratio in fixed income this year.

Generally, we'd look to 2026 as an environment where you want to own fixed income. Broadly, the macro backdrop looks supportive. In the US, we're seeing resilient growth bleeding into next year. The Fed, we continue to expect to cut rates, aided by deregulation and tax cuts flowing through the economy. In Europe, we're also finally seeing some green shoots, hopefully, reignited by fiscal stimulus in both infrastructure and defense. Multi-Asset Credit again offers a dynamic way of capturing that, casting the net widely to global opportunities across an array of asset classes.

With that, we believe there's two key messages for the coming year. Firstly, we prioritise flexibility in the context of a global product. One of the key themes of this year has been the constant challenge to the idea of US exceptionalism, and the dominance the US dollar has played. More recently, we're beginning to see a renewal of that debate, challenging the idea of the exceptionalism of corporate America and that the valuations of some of the largest players in the AGI race are starting to be challenged. If that US premium starts to wobble, we'd argue that the marginal dollar isn't going to unquestionably flow into US assets anymore.

We're already starting to see this with foreign buyers in regards to their hedge ratios. Those hedges, how much they protect themselves against currency moves, are being managed a lot more tightly than we've seen in recent history. Investors aren't blindly accepting dollar exposure anymore. That should naturally put a cap on the dollar's dominance. When you combine this with improvements to sovereign balance sheets that we're seeing in emerging markets, notably in comparison with their developed market counterparts, you suddenly have a very compelling, diverse global map of opportunities.

Secondly, we believe active management will be key this year. With fixed income index spreads continuing to sit at multi-decade tights, our job in 2026 isn't just asset allocation. Although we still believe that getting the top-down calls will be important, more pressing will be the dispersion trade. We need to look under the surface of those indices. By prioritising strong bottom-up name selection, we can build portfolios that are actually efficient, balancing yield against that default risk.

To wrap up, 2026 is about combining those big top-down macro calls with rigorous bottom-up name selection. If you can get that right, spreading the net widely with Multi-Asset Credit is going to offer ample opportunity next year.

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The strategy presented relates to speculative investments subject to many specific risks notably the risk of loss of the entire amount invested. Among others, interest rates risks, market conditions risks, reinvestment risks, currency risks, liquidity risks apply. Please contact RBC GAM for more information on the risks.