Hunt for yield
Euro cash deposit rates have halved from their 2024 highs, and US dollar savings rates are now following as the Federal Reserve resumes interest rate cuts. With over EUR 9 trillion in eurozone household deposits and over USD 7 trillion in US money market funds, which will generate much lower returns in 2026 and beyond, cash-rich investors are once again obliged to look further afield for reasonable expected rates of return. Sovereign and corporate bond markets do not offer many obvious yield choices at present, with investment grade credit close to 15-year lows and US Treasury yields falling as the Fed cuts rates. Acting opportunistically to profit from temporarily higher bond yields will be key in 2026.
Our recommendations
Solutions offering attractive yields at reasonable risk are available in a range of different asset classes, including:
- Emerging market bonds in local currency
- Euro financial sector and corporate hybrid bonds
- Selected lower-risk private credit funds
- Quality dividend and dividend growth equity funds and ETFs
- Income-oriented structured solutions for yield enhancement based on stocks, rates and corporate bonds
Additionally, investors should opportunistically use any temporary corrections to enter shortdated high yield corporate bond funds and ETFs at higher entry yields.
Key risks
- Inflation proves sticky: central banks are forced to halt or even hike rates, keeping cash yields higher for longer and thus reducing the urgency for investors to move out of deposits.
- Bond yields rise again: a repricing of rate expectations or fiscal slippage could send sovereign yields higher, creating short-term capital losses on fixed-income positions.
- Emerging Markets (EM) sentiment sours: a stronger USD or a geopolitical shock could trigger capital outflows and weakness in EM currencies.
- Liquidity risk in private credit: limited redemption options or delayed valuations in less liquid funds
We invite you to go further by reading and watching each investment theme
