With the Bank of Japan standing out as a notable exception, most central banks lowered short‑term interest rates in 2025. Tension between a slowing labor market and stubborn inflation has made each decision harder to calibrate for the U.S. Federal Reserve, however, and fixed income markets have taken notice.
Far from unanimous, the year-end interest rate cut reveals a divided committee. The official outlook still has 2026 and 2027 penciled in for one additional reduction each, but those forecasts hinge on official data that has been muddied by the government shutdown. Investors appear hesitant to assume that meaningfully lower monetary policy is guaranteed; without a pronounced economic downturn, this easing cycle may be nearing its limits.
We will not mince words: business investment has been extraordinary. At the same time, employment growth has cooled, prompting debate about whether this spending will ultimately broaden out or remain localized to a relatively select few. One camp argues that, given time, these investments will lift productivity and hiring; the other worries that they are masking underlying softness.
Less subtle have been expanding fiscal deficits, which, we note, approach post-war levels. Global government debt has eclipsed $100 trillion, of which America claims more than a third, with debt-to-GDP ratios near 120% and growing. Japan crested 200% for more than a decade without catastrophe. Simply put, there isn’t a known threshold to trigger a crisis event. Slowing growth, higher interest rates, and central banks showing little appetite at bond auctions—credit concerns originate from the surrounding context and may explain the directional trend of long-dated yields climbing since the turn of the decade.
More novel, less embedded developments are found in the private sector. There has been a surge in corporate debt issuance over the quarter, and even here, AI shows its influence. Hyperscalers issued $121B in corporate debt in 2025—over $90B was raised in the final three months of the year alone. While these companies remain highly profitable with strong credit ratings, their willingness to lever up balance sheets signals both the scale of ambition and competitive pressure to jockey for leadership. With heavy upfront costs and back-loaded revenues, long-term financing is needed to bridge the funding gap, translating into upward supply pressure.
Figure 5: Financing the Future of Artificial Intelligence (AI)
Main funding paths for global data center spend through 2025-2028 (USD)
Source(s): Morgan Stanley Research. *Private equity, venture capital, and sovereign wealth funds. **Asset-backed securities, commercial mortgage-backed securities.
Fixed income markets are more dynamic than some give credit for. Short‑end yields are sensitive to central bank policy, while long‑dated issues focus on fiscal risks and inflation expectations. Deep in the midst of one secular trend (e.g., government debt) and likely at the start of another (e.g., the AI buildout), allocations based on single-point forecasts could be at risk of misbalancing fiscal concerns, government spending, and growth potential.
In this light, selection across duration, quality, and sectors carries weight as a stabilizing force for portfolio construction.
Inflation‑linked bonds offer near‑term protection as tariff and policy effects work through the system. Municipals remain attractive on an after‑tax basis for intermediate holdings. Agency mortgage‑backed securities appeal as well. If Treasury yields fall, prepayments may rise in a healthier environment with more reinvestment options, whereas investors can keep collecting today’s spreads if housing market paralysis persists.
Source(s): Bloomberg Finance L.P. As of December 31, 2025.
Promus Advisors, an SEC-registered investment adviser, is an affiliate of Bellwether Investment Management, Inc. (“Bellwether”). Promus Advisors provides fee-based asset management and advisory services. Bellwether and Promus Advisors have entered into arrangements in which Bellwether may refer clients with financial advisory needs to Promus Advisors. Please note that SEC registration does not constitute an endorsement of the firm by the Securities and Exchange Commission, nor does it indicate that the adviser has attained a particular level of skill. Promus Advisors and its investment adviser representatives are in compliance with the current filing requirements imposed upon SEC-registered investment advisers by those states in which Promus Advisors maintains clients.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy will be profitable, equal any corresponding performance level(s), or be suitable for any specific client’s portfolio. Promus Advisors does not guarantee that any benchmark or indices used by Bellwether will match a given portfolio. Furthermore, asset allocation and/or diversification does not necessarily improve an investor’s performance or eliminate the risk of investment loss.
Promus Asset Management, LLC is a registered investment advisor. Investment Advisory Services are offered through Promus Asset Management, LLC, which is independently owned and operated, and separate from Promus Advisors, LLC. Promus Asset Management, LLC will never be paid on products, commissions or referrals.
Pershing Advisor Solutions is a registered broker-dealer, and is not affiliated with any Promus entity nor with any advisor whose name appears on this website. Pershing Advisor Solutions neither endorses nor recommends any particular advisor or investment strategy suggested by either Promus Advisors, LLC or Promus Asset Management, LLC. Pershing Advisor Solutions has agreements with Promus Asset Management, LLC under which Pershing Advisor Solutions provides custodial services related to your account. Pershing Advisor Solutions does not review the Promus Advisors website, and makes no representation regarding the content of the website. The information contained in the Promus Advisors website should not be considered a recommendation by Pershing Advisor Solutions or a solicitation of any offer to purchase or sell securities.
This website uses cookies to ensure you get the best experience. By continuing to browse on this website, you accept the use of cookies for the above purposes.
02-02-2026
Quarterly Insights Pt. 3: Fixed Income Q4 2025
With the Bank of Japan standing out as a notable exception, most central banks lowered short‑term interest rates in 2025. Tension between a slowing labor market and stubborn inflation has made each decision harder to calibrate for the U.S. Federal Reserve, however, and fixed income markets have taken notice.
Far from unanimous, the year-end interest rate cut reveals a divided committee. The official outlook still has 2026 and 2027 penciled in for one additional reduction each, but those forecasts hinge on official data that has been muddied by the government shutdown. Investors appear hesitant to assume that meaningfully lower monetary policy is guaranteed; without a pronounced economic downturn, this easing cycle may be nearing its limits.
We will not mince words: business investment has been extraordinary. At the same time, employment growth has cooled, prompting debate about whether this spending will ultimately broaden out or remain localized to a relatively select few. One camp argues that, given time, these investments will lift productivity and hiring; the other worries that they are masking underlying softness.
Less subtle have been expanding fiscal deficits, which, we note, approach post-war levels. Global government debt has eclipsed $100 trillion, of which America claims more than a third, with debt-to-GDP ratios near 120% and growing. Japan crested 200% for more than a decade without catastrophe. Simply put, there isn’t a known threshold to trigger a crisis event. Slowing growth, higher interest rates, and central banks showing little appetite at bond auctions—credit concerns originate from the surrounding context and may explain the directional trend of long-dated yields climbing since the turn of the decade.
More novel, less embedded developments are found in the private sector. There has been a surge in corporate debt issuance over the quarter, and even here, AI shows its influence. Hyperscalers issued $121B in corporate debt in 2025—over $90B was raised in the final three months of the year alone. While these companies remain highly profitable with strong credit ratings, their willingness to lever up balance sheets signals both the scale of ambition and competitive pressure to jockey for leadership. With heavy upfront costs and back-loaded revenues, long-term financing is needed to bridge the funding gap, translating into upward supply pressure.
Figure 5: Financing the Future of Artificial Intelligence (AI)
Main funding paths for global data center spend through 2025-2028 (USD)
Fixed income markets are more dynamic than some give credit for. Short‑end yields are sensitive to central bank policy, while long‑dated issues focus on fiscal risks and inflation expectations. Deep in the midst of one secular trend (e.g., government debt) and likely at the start of another (e.g., the AI buildout), allocations based on single-point forecasts could be at risk of misbalancing fiscal concerns, government spending, and growth potential.
In this light, selection across duration, quality, and sectors carries weight as a stabilizing force for portfolio construction.
Inflation‑linked bonds offer near‑term protection as tariff and policy effects work through the system. Municipals remain attractive on an after‑tax basis for intermediate holdings. Agency mortgage‑backed securities appeal as well. If Treasury yields fall, prepayments may rise in a healthier environment with more reinvestment options, whereas investors can keep collecting today’s spreads if housing market paralysis persists.
Promus Advisors, an SEC-registered investment adviser, is an affiliate of Bellwether Investment Management, Inc. (“Bellwether”). Promus Advisors provides fee-based asset management and advisory services. Bellwether and Promus Advisors have entered into arrangements in which Bellwether may refer clients with financial advisory needs to Promus Advisors. Please note that SEC registration does not constitute an endorsement of the firm by the Securities and Exchange Commission, nor does it indicate that the adviser has attained a particular level of skill. Promus Advisors and its investment adviser representatives are in compliance with the current filing requirements imposed upon SEC-registered investment advisers by those states in which Promus Advisors maintains clients.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy will be profitable, equal any corresponding performance level(s), or be suitable for any specific client’s portfolio. Promus Advisors does not guarantee that any benchmark or indices used by Bellwether will match a given portfolio. Furthermore, asset allocation and/or diversification does not necessarily improve an investor’s performance or eliminate the risk of investment loss.
POPULAR POSTS