Binaya Dahal
Journalist
19 August 2026
US Treasuries face a difficult second half of the year as inflation risks, fiscal uncertainty and an unclear US Federal Reserve (US Fed) policy outlook threaten to keep long-term borrowing costs elevated, according to BNP Paribas Asset Management.
Chris Iggo, chief investment officer for AXA IM Core Investments at the $2.8 trillion asset manager, said investors should remain constructive on equities and high-yield credit, but avoid taking large positions in long-duration government bonds until the outlook for inflation and monetary policy becomes clearer.
“It is hard to know what level of yield would make the outlook for total returns from long duration fixed income better. At a 5.25% yield, the 30-year US Treasury bond looks favourable if the Fed can return to meeting its inflation target,” Iggo said.
“But markets do overshoot fair value. November’s elections could bring forth more policy risk and will certainly focus market attention on fiscal matters ahead of the usual budget season.
“Will November’s elections provide enough of a political turnaround for Congress to set fiscal policy on a more sustainable path? Investors are cynical about that.”
With inflation concerns, November midterm election uncertainty and investor unease over the US Fed’s policy outlook, Iggo believes returns from long-dated US Treasuries could remain under pressure through the remainder of the year.
“In my opinion, the only things which might change that is a sudden weakening in economic data or some kind of external shock. The latter appears more likely than the former,” he said.
“Investors in fixed income remain better served, from a risk-return perspective, in shorter duration assets and where a significant amount of the return comes from the credit spread, like high yield.”
Against this backdrop, Iggo said sticking with risk assets seems appropriate.
“The global economy is in decent shape with major economies forecast to grow close to trend through 2027. Manufacturing activity is strong, and indicators of service sector activity continue to be healthy,” he said.
“There are always things to worry about – like El Niño, the heatwave and drought in Europe potentially disrupting food supply chains, and political uncertainty ahead as the US gears up for its midterm Congressional elections.
“But investors sticking with risk in developed and emerging market equities, and in high yield credit, still seems potentially appropriate.”