"The best opportunity in decades": J.P.Morgan's Iain Stealey on a good time for fixed income

"If I look at what equity markets are doing, if I look at what credit spreads are doing and look at what government yields are doing, they all point to the fact that actually the global economy's doing fine."

"If there's a recession, it's going a lot lower, a couple hundred basis points lower easily," said Stealey. "It's difficult to see it go a lot higher than it is. Now it feels painful. September felt painful."

"The market was obviously ready to move higher, but I do wonder how much we can actually go."

But you can't ignore the headwinds

While Stealey remains positive on the outlook for markets, as always, there are some trends complicating the picture. 

Oil prices have had a huge knock-on effect on the spending capacity of many, and elevated real yields could weigh on growth.

But it's second round inflation effects that Stealey is watching most closely, even if we're again unlikely to get a repeat of 2022. 

"We were talking 6-8% inflation in the US, double digit inflation in Europe," he said. "We're not in that environment at all at the minute."

One catalyst there could be wage growth, which could drive excess spending and have the US and other economies running hot. 

"If the consumer starts to get real wage increases or significant real wage increases, then they feel more confident, then they go out spending."

The opportunity in government bonds

The JPMAM view is that government bonds are finally heading back to where they were before the GFC, and then Covid, wreaked havoc with the markets.

In developed markets, there's some nuance to what they're watching, but the broader outlook on government bonds is positive. 

"That strikes me as quite a lot considering we're seeing weakness in France as well," he said. "That's an easy thing for ECB. I don't think they're going to be buying French government bonds anytime soon, but the easy thing for them to do to try to cool things down would be to not hike."

Things are slightly different in the US where the growth outlook is more assured. 

"The Fed's more interesting because I think actually the US economy is probably the strongest out there," said Stealey. "Now it's definitely K-shaped there, but the US economy is the one that's growth is tracking at two and a half to three versus close to one for the year. So that's the one that probably looks fairish value to us."

Current yields have created what JPMAM believes could be some of the most attractive income and carry opportunities in years, even if bond returns so far this 2026 have been lacklustre.  

"From a fixed income standpoint, the starting level of yield back at 2022 was one and a half on the 10-year, but it's now at five," said Stealey. "You've got a huge amount of yield cushion that can absorb that movement higher in yields. And I think we're 100bps higher in yield this year and most fixed income indices are kind of flat to down half a percent or so." 

"It's not ideal, particularly compared to probably where you thought you were going to be. I thought we would be doing mid single digit returns this year and obviously we're doing flat to negative."

But he is supportive of the possibility of those returns emerging in the year ahead. 

"In the context of a balanced portfolio, my assumption would be your equities are probably doing better than you thought they were going to be doing. So combine it all together and if you are a multi-asset portfolio or you've got a balanced portfolio, you're probably doing fine."

"It's just your bonds have done a little bit worse, your equity's done a little bit better, but you've not lost your shirt."