The global fixed income landscape is currently weathering a complex economic climate, defined by geopolitical friction and shifting central bank trajectories, but the opportunities are still about, comments Valentine Ainouz, head of Global Fixed Income Strategy at the Amundi Investment Institute.
Speaking exclusively to Funds Europe at the Amundi World Investment Forum 2026, taking place in Paris 11-12 June, she provided a comprehensive breakdown of how supply shocks, labour dynamics, and technological investments are reshaping the bond markets across Europe and the United States.
The eurozone’s exogenous supply shock
According to Ainouz, the ongoing conflict in the Middle East functions primarily as an exogenous supply shock that heavily impacts the eurozone economy. This shock acts through three distinct channels: heightened market uncertainty, elevated oil prices that erode household purchasing power while increasing corporate production costs, and a tightening of overall financing conditions due to central bank interest rate hikes. Reflecting on this dynamic, Ainouz summarized the situation as a “supply shock, higher inflation, lower growth, and higher level of uncertainty.”
Consequently, Amundi has revised its eurozone growth expectations downward to approximately 0.7% to 0.8% over the next two years, matching the European Central Bank’s (ECB) projections. Ainouz emphasised that this environment differs significantly from the inflationary spike of 2022. Today, the eurozone is facing a weakening labour market characterised by a much lower level of job creation and wage growth hovering around 2%, compared to the 4%-5% wage growth seen in 2022.
Furthermore, while 2022 began with negative interest yields and a -0.5% ECB deposit rate, the modern baseline features long-term interest rates that are already firmly in restrictive territory. Against this backdrop of weaker growth, the latest, June, ECB rate announcement reinforces a monetary path that Ainouz believes will ultimately necessitate a policy reversal, projecting that the central bank will be forced to cut rates later in 2027. Within government debt, she said she sees notable value on the short end of the curve, remaining more cautious on long-term sovereign bonds due to persistent government funding needs and heightened investor vigilance regarding fiscal risk.
Corporate credit market
Despite broader economic headwinds, Ainouz maintains a positive outlook on public corporate credit, noting that fundamental and technical factors remain robust. However, she highlighted a sharp asymmetry within the corporate sector:
- Large corporations: These entities continue to benefit from excellent liquidity and primary market access. Having managed their balance sheets with extreme caution since the COVID-19 pandemic, their solid fundamentals are well-aligned with bondholder interests. High demand fuelled by attractive yield levels has allowed the market to seamlessly absorb new debt issuance.
- SMEs: Conversely, smaller businesses reliant solely on the banking sector face a much tougher environment, she stressed. Recent ECB surveys indicate banks are tightening credit criteria for corporates, leading to a rise in delinquency and default rates exclusively among smaller firms without corporate bond market access – a trend mirrored by rising Chapter 11 filings in the US.
Ainouz underscored this market divide by noting a strong asymmetry between companies that have access to the market versus companies that only have access to the banking sector. Within public credit, she noted investment grade (IG) debt due to attractive yield levels and views double-B and high single-B segments within high-yield as selective opportunities.
The US story
Looking ahead, Ainouz considers the United States to be a more complex and critical focal point for fixed income strategies. The US economy has demonstrated significant resilience, driven by wealth effects, equity market performance, and massive capital expenditures in the technology sector.
Large technology companies have revised their capex budgets upward through 2027 to build infrastructure, such as data centres, to support AI. This AI-driven investment boom is heavily supporting US consumption and growth. However, Ainouz concluded that this heavy reliance on tech spending introduces a fundamental question regarding sustainability. For global fixed income strategists, she noted that “here the neutral rate of the US economy is really the big question coming next” because the current economic trajectory is “clearly a big bet on AI.”
