Still hiding in cash after 2022? You may be missing out

Please note that this interview was recorded on Tuesday, 19 May 2026.

Investors have had no shortage of issues to contend with over the past 12 months.

Artificial intelligence continues to reshape capital expenditure and energy demand. The US economy is slowing but not breaking. The labour market is cooling. And now, conflict in the Middle East has reignited concerns about oil prices, inflation and the path of interest rates.

The result is a market wrestling with the question, "Are we heading back towards the conditions that defined 2022?" Adam Grotzinger, Senior Portfolio Manager & Global Head of Fixed Income at Neuberger, does not think so.

"We think 2026 looks a lot different from 2022 on numerous factors across the US economy", says Grotzinger.

While markets have increasingly priced a more inflationary future, he argues the underlying conditions are markedly different from four years ago. Wage growth is softer, labour markets are less robust, fiscal support has faded and the Federal Reserve is operating from a far more restrictive starting point.

"Today's fixed income is about time in market. And so it's time in market, not timing of the market."

In the interview above, Grotzinger explains why he believes the front end of the US Treasury curve offers some of the most compelling opportunities available today, why he is more cautious on credit despite attractive yields, what bond markets are revealing about the enormous AI infrastructure build-out, and why emerging market debt remains one of the most interesting opportunities in global fixed income.

The market is fighting the last war

One of Grotzinger's strongest convictions is that investors are applying a 2022 framework to a market that looks fundamentally different today.

While inflation concerns have resurfaced following higher oil prices and geopolitical tensions, he argues the underlying economic conditions are nowhere near as inflationary as they were four years ago.

"The US labour market was printing 200,000-600,000 on monthly payroll prints. Today we're printing a three-month average of 48,000."

Wage growth has moderated materially, fiscal stimulus has largely faded, quantitative easing has been unwound and the Federal Reserve is no longer starting from a zero-rate setting.

As a result, Grotzinger believes markets may be overestimating the likelihood of future rate hikes. That view underpins one of his preferred opportunities today: the front end of the US Treasury market.

The market has shifted from expecting multiple Federal Reserve rate cuts to pricing potential hikes in 2027. Grotzinger sees that as an overreaction.

"We have a slightly different takeaway from that, which is the Fed, while on hold for the time being, is likely still in a position to be cutting as we go forward into Q4 this year and into 2027."

For investors, the attraction is not simply the yield available on Treasuries today. If Grotzinger is correct and markets eventually move back towards pricing rate cuts rather than hikes, investors could benefit from both the coupon income and capital gains as bond prices rise.

In his view, two and five-year Treasuries currently offer some of the most attractive risk-adjusted opportunities in global fixed income.

Credit still offers yield but caution is warranted

While Grotzinger is constructive on government bonds, he is notably more cautious on credit. The reason is not economic deterioration but valuation.

Credit markets have remained remarkably resilient despite geopolitical volatility and shifting interest rate expectations. Spreads widened briefly during the initial Middle East conflict before quickly retracing.

"Credit has been really bedrock solid," says Grotzinger, but that resilience has left valuations looking less compelling than other areas of fixed income.

Grotzinger is not advocating avoiding credit altogether. High-yield markets continue to offer attractive yields in the 6-7% range. However, he believes investors should be disciplined about how much risk they are taking.

"Don't own your full risk budget in credit with valuations where you're overpaying, basically, for that credit exposure."

He is also paying close attention to industries vulnerable to technological disruption, particularly those exposed to artificial intelligence and changing competitive dynamics.

Broadcasting businesses are one example where he sees structural challenges emerging. He also notes that parts of the software sector face growing disruption risks, although public credit markets currently have relatively limited exposure compared to private credit.

For investors, the message is clear: credit can still play a role in portfolios, but future returns are likely to be driven more by careful security selection and valuation discipline than simply buying broad market exposure.

What bond markets are saying about AI

Artificial intelligence has become one of the dominant themes in equity markets, but Grotzinger argues it is increasingly becoming a fixed income story as well.

The sheer scale of capital expenditure required to build AI infrastructure is transforming debt markets. Many hyperscale technology companies that previously carried little or no debt are now becoming major issuers.

"We're looking at US$220 billion of potential issuance."

The key question for bond investors is not whether AI succeeds, but whether the enormous debt being raised ultimately translates into sufficient revenue growth.

"What everybody's going to be watching closely, including ourselves, is how revenue is tracking to this ongoing debt stack that you're building as a company."

Rather than making a binary bet on AI winners, Grotzinger prefers areas where investors can achieve comparable yields with less uncertainty.

His preferred alternatives include large money-centre banks, shorter-dated corporate bonds and US mortgages.

"We're really not trying to express a strong AI view from the position of a lender or a fixed income investor."

In other words, investors do not need to take concentrated AI risk to access attractive opportunities in fixed income today.

Emerging markets continue to stand out

One area where Grotzinger has become increasingly constructive is emerging market debt.

The combination of a weaker US dollar, improving fundamentals and attractive valuations continues to support the asset class.

Some commodity-oriented emerging economies are benefiting from ongoing demand for resources linked to the AI build-out, while others have demonstrated strong monetary and fiscal discipline.

"Some of these local markets, the central banks have been ahead of the curve in managing monetary policy."

That creates a potentially attractive combination of income, falling local interest rates, supportive economic growth and potentially stronger currencies.

The opportunity is compelling enough that Neuberger has meaningfully increased its exposure.

"We've taken that from a 4 or 5% position now and doubled it to 9, 10% reflective of that opportunity."

Emerging market debt is one of the few areas where investors may have multiple return drivers working in their favour simultaneously. Beyond the underlying yield, there is potential upside from declining local interest rates, spread compression and currency appreciation should the US dollar continue to weaken.

Why cash investors may be missing the opportunity

Grotzinger acknowledges that many investors remain heavily allocated to cash after the bruising bond market experience of 2022.

Cash provides flexibility and certainty, but little opportunity for capital appreciation. Comparatively, bonds offer both an income stream and the potential for price gains when markets misprice future outcomes.

Investors who move beyond cash can lock in higher yields while also benefiting from potential price appreciation when markets reassess economic fundamentals and the outlook for interest rates.

"When you move out the curve, you can lock in higher levels of income, but you can also play for more total return through the price fluctuations of those bonds."

For investors still anchored to the experience of 2022, that may be the most important takeaway of all. The fixed income market on offer today is very different from the one investors fled several years ago. The opportunity is no longer simply about clipping a coupon.

Managed Fund

Neuberger Berman Strategic Income Fund

Global Fixed Income

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