RBC BlueBay says worst of 2026 bond bear market is over

Mark Dowding, chief investment officer for fixed income at RBC BlueBay Royal Bank of Canada ↘ 2.15% Asset Management, said Tuesday that the worst of this year's global bond rout is likely behind investors, marking a notable shift in outlook from one of the world's largest fixed income managers.

"We think that the worst of the big bond bear market of 2026 may be behind us at this particular moment," Dowding told Reuters, adding that BlueBay had adopted "for the first time this year, a more constructive view on the outlook for owning duration."theglobeandmail

A Brutal Year for Bonds

The call comes after a punishing stretch for government debt worldwide. The average 10-year yield across the Group of Seven economies climbed to 4.285% in mid-September, its highest since mid-2008, according to Reuters. In the United States, the benchmark 10-year Treasury yield briefly topped 5% on September 15 for the first time since 2007. Japanese 10-year yields hit a three-decade high above 3%, while UK gilts reached levels not seen since 2007.reuters+1

The selloff has been driven by a convergence of forces: inflation stoked by the Iran conflict and elevated energy costs, heavy government debt issuance, and a wave of corporate bond supply from the technology sector.theglobeandmail+1

Fed Rate Hike Shifts the Calculus

The Federal Reserve's September 16 decision to raise rates by 25 basis points to a range of 3.75%-4% — its first hike in three years — appears to have been a turning point for Dowding's team. The unanimous FOMC vote and Chair Kevin Warsh's messaging helped restore some confidence in the central bank's inflation-fighting resolve.federalreserve+3

BlueBay, which manages nearly $600 billion in assets, is now more inclined to hold two-year European bonds and five-year U.S. Treasuries. Dowding said the Fed may deliver fewer rate increases than markets currently expect, arguing that investors have become "overly aggressive in pricing future monetary tightening".financialnewswire+1

Caution on Long-Dated Debt and UK Gilts

Dowding struck a more cautious tone on longer-dated government bonds, citing persistent fiscal concerns and high issuance across major economies. He was particularly pointed about the United Kingdom, where he warned officials against overestimating their fiscal room ahead of an October budget. "In no uncertain terms, we are saying be careful here," he said.theglobeandmail

He added that the Bank of England is likely to deliver fewer rate cuts than markets are pricing, making short-dated gilts more attractive than their longer-dated counterparts. On the U.S. side, Dowding noted a widening gap in credibility between the Fed and the Treasury Department: "It's almost a moment where we are sort of re-establishing trust in the Fed to do their job… and that comes at a time when Bessent is actually becoming less orthodox."theglobeandmail