Heading into 2026, market participants will face familiar questions around the outlook for inflation, the economy’s path and interest-rate stability, says Aaron Young, executive director, client portfolio management, CIBC Asset Management.
They are the same questions that made 2025 a challenging year, he said in a Nov. 26 interview.
Tariff uncertainty heightened inflation concerns and created sharp market volatility in the first half of 2025, Young said, and a slowing economy caused many to anticipate a recession that never happened, Young said.
Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.
“For fixed income, the real impact around these macroeconomic drivers was how that feeds into inflation,” he said. “So where is inflation going to print in the near and long term, and how does that feed through to monetary policy?”
Responses by the U.S. Federal Reserve and the Bank of Canada were similar in direction but not in size.
“We’ve been acutely aware of the policy rate differential between Canada and the U.S., with Canada cutting earlier and deeper,” Young said. “As with any element of cutting of interest rates, that’s good for bond markets, especially if you have some duration in your portfolios.”
For instance, the U.S. aggregate bond market had a 7.5% total return as of end of November 2025. That compares to the Canadian aggregate bond market with a 3.5% return during the same time, he said, adding that this differential reflected Canada’s shift from rapid cuts to a steadier phase, with future cuts carrying less weight than in prior years.
Uncertainty around future Fed rate cuts will be a key theme going forward, Young said.
“The easy money has been won, especially if you had some U.S. exposure in your fixed-income portfolios. We don’t think you’re going to get as many cuts as some market participants are expecting.”
He suggested investors need to continue to keep duration top of mind.
“Duration is not always your enemy,” he said. “We’re not saying go out and buy long bonds, but it’s a good way to capture those shifts in policy divergence between Canada/U.S.”
Another consideration for 2026 is the AI boom and its impact on the global economy, Young said. It will shape how investors search for risk-adjusted opportunities in fixed income.
Corporate credit could continue to be a compelling area, he said, including investment grade, high yield, leveraged loans, lower-rated collateralized loan obligations (CLOs) and private credit. For instance, investment-grade corporates performed well this year, he said, with about 4% to 5% returns in Canada as of the end of November 2025, and more than 7% in the U.S.
“The delta between owning corporates over, say, governments, U.S. Treasuries, provincials, Government of Canadas, you picked up extra basis points, but we would argue that the difference wasn’t enough to make it worthwhile to go all out on corporate credit,” Young said.
And as valuations in credit remain rich, active management will be key, he said. This includes being very selective and evaluating micro cycles within different sectors. In private credit, consider the manager’s tenure and track record across varying market cycles and rate environments, Young said.
“For us, especially going into the credit space, the focus should be on really, highly risk-adjusted total return, and more focus on possible downside than trying to capture upside,” he said. “We do think that’s going to be the playbook for success in 2026.”
This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.
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