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Fixed income inflows strengthen as inflation trends improve

Long-term fixed income allocations increased in Q4, with strong aggregate flows, firmer demand for credit, and normalising appetite for duration. The outlook remains mixed: investor interest in inflation protection is strong, and support for emerging market debt remains patchy despite the better inflation outlook.

15 January 2026 5 min read

Figure 1: Investor H2 flows

Long-term investor demand for US Treasurys across the curve is improving. Although demand for assets beyond the 1-3 year segment of the curve remains below historical median levels, appetite for the 7-10 segment of the curve crept into the 60th percentile of past flows. This was below the much stronger inflows at the front end but suggests that appetite for duration is returning.

Q1 inflation barometer

for this cautious optimism to be justified, inflation needs to keep declining. Our PriceStats data supports this view for now. After accelerating early in Q4, US inflation appears to have peaked and is easing in line with expectations. Q1 looks set to be the inflation bellwether for 2026, as relatively favourable base effects are offset by the inflationary impulse of fiscal stimulus.

Inflation trends in most emerging markets continue Q3’s more benign path, with lower numbers in historically higher inflation economies such as Turkey and Argentina, as well as Brazil, South Korea and Poland. This underscores the strengthening improvement in local currency bond fundamentals in many emerging markets.

Read our accompanying Q1 Bond Outlook here.

Disclosure

Marketing Communication

Important Risk Discussion

The views expressed in this material are the views of State Street Markets through the period 4 January 2026. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for decisions based on, such information and it should not be relied on as such.

Bonds generally present less short-term risk and volatility than stocks but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Investing in high yield fixed income securities, otherwise known as “junk bonds,” is considered speculative and involves greater risk of loss of principal and interest than investing in investment-grade fixed income securities. These lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.

Investments in emerging or developing markets may be more volatile and less liquid than investments in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems that have less stability than those of more developed countries.

Investing involves risk, including the risk of loss of principal.

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5798070.13.1.EMEA.INST

Exp. Date: 30/04/2026

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