Key Facts
• In 2025, the US bond market delivered strong returns, with a total return of about 7.3% on the Morningstar US Core Bond TR YSD Index.
• The Federal Reserve cut rates by a total of 75 basis points in 2025, supporting bond prices.
• For 2026, the Fed’s expected rate cuts are smaller, around 60 basis points.
• Fiscal stimulus from former President Trump may pressure long-term bond prices.
• The 10-year US Treasury yield fell by over 40 basis points in 2025, ending near 4.1%.
• Analysts forecast 10-year yields at year-end 2026 between 4.25% and 4.35% (JPMorgan and Bank of America Securities).
• Some investors expect yields around 4%, but remain cautious on long-term bonds due to rising global government debt.
• Investment-grade corporate bond spreads stood near 80 basis points at end-2025, close to a 1998 low.
• JPMorgan predicts spreads widening to 110 basis points in 2026, lowering total returns to about 3%.
• BNP Paribas expects spreads to remain stable at 80 basis points through 2026.
• Manulife John Hancock Investments is optimistic on high-quality bonds, expecting disinflation and economic slowdown to boost prices.
Summary
The US bond market, which saw robust returns in 2025 driven by significant Federal Reserve rate cuts and market concerns, is expected to face a tougher environment in 2026. The pace of Fed rate reductions is forecast to slow, with smaller cuts anticipated, while fiscal stimulus measures may keep long-term yields from falling as much as last year. Analysts from JPMorgan and Bank of America Securities project a modest rise in 10-year Treasury yields by the end of 2026. Investment-grade corporate bond spreads, currently near historic lows, may widen according to JPMorgan, potentially reducing returns. However, some strategists remain optimistic about high-quality bonds, citing expected disinflation and economic slowdown. Overall, the market outlook suggests lower total returns and increased caution among investors, especially regarding long-duration bonds vulnerable to rising yields amid growing global debt levels.
