Part Three
Portfolio Strategy in an Uncertain Macro Cycle
Planning for many futures: with no single macro force in charge, leaders are building strategies that can cope with a range of outcomes.
The four macro headline risks of 2026 – interest rate policy, geopolitics, inflation, and currency volatility – dominate strategic decisions in fixed income too, as closely interrelated factors.
The severity of this year’s conflict-induced energy shocks has in turn pushed fiscal policy down on the list, from being a leading challenge in 2025.
Nonetheless, current levels of government spending and borrowing remain concerning among fixed income leaders, with European governments’ deficits at a record high.
Fixed income leaders will continue to navigate uncertainty on several fronts at once heading into 2027. Therefore the ability to rebalance quickly matters more than predicting which factor will dominate, contributing the the expansion of portfolio trading as a top trend.
Q: Which macroeconomic factors are having the greatest influence on your investment strategy today?
Respondents were asked to select up to three options
Ines de Tremiolles
Global Head of Trading, BNP Paribas
"I’m surprised government debt levels rank so low on the importance of macro factors. In G10 countries it should be of very high concern, given the interest rates we are going to face and the debt levels we currently have."
Lars Salmon
Head of Fixed Income Trading, Fidelity
"I think the results are pretty equally distributed because they all follow from each other or depend on the same origin. The bit that does surprise me is fiscal policy. That has been a theme throughout the last number of years and will continue to be an increasing theme, with record deficits in the US and many other countries and still no really discernible strategy to improve that picture.”
Alec Clements,
Co-Founder, PricingMonkey
Interest rate policy tops the list at 48%, and no wonder. When the path of central bank rates is uncertain, market expectations move first, and those expectations are exactly what rates options and futures price. Knowing how the market is positioned for the next move is now a strategic input, not just a trading one. PricingMonkey shows desks how the market is pricing rate outcomes, quickly and consistently. PMs and traders can test a view before committing capital instead of reacting after the fact.
Regulation Turns to AI
AI regulation is expected to have the biggest impact over the next three years (25%), where Europe is headed in a clear direction. ESMA has confirmed that existing MiFID II rules – including acting in clients’ best interests – apply to AI, and the EU has agreed to delay the AI Act’s high-risk rules to December 2027.
There is a gap in readiness, though. 31% see governance and regulation as a barrier to AI, but only 16% worry about explainability – the issue regulators are most likely to question when AI is used in execution.
T+1 is the most immediate change, with the EU, UK and Switzerland moving to T+1 settlement on 11 October 2027. This gives bond desks less time after each trade, and makes the automation and data work discussed in the previous chapter more urgent.
Q: Which regulatory development do you believe will have the greatest impact on fixed income markets over the next three years?
Ines de Tremiolles
Global Head of Trading, BNP Paribas
"Market transparency reforms and the consolidated tape will have the biggest impact. In fixed income you need to think not only about cash, but about OTC derivatives too, with UTIs and a lot more reporting. We’re moving towards an equitisation of the fixed income market."
Lars Salmon
Head of Fixed Income Trading, Fidelity
"Buy-side trading is a heavily regulated function, and best execution is all about the best outcomes for clients. We have a huge fiduciary responsibility. To the extent that AI might go well beyond improving on more traditional best-ex decision-making processes, regulators may be particularly interested.”
Liquidity management leads a divided agenda
The industry does not have a single dominant priority, but improving liquidity management leads (21%), just ahead of expanding into new asset classes (17%).
What stands out is how leaders think about liquidity. Only 19% see market liquidity as a key macro factor, and just 6% name it as the defining challenge of 2030, yet it is the top priority for the next two years. Fixed income leaders treat liquidity as something to manage day to day – with better tools and a wider range of instruments, from ETFs and portfolio trading to credit and bond index futures – rather than something to forecast.
Q: What is your firm's highhest strategic priority over the next two years?
Respondents were asked to select up to three options
"Improving liquidity management is definitely a priority for us, and that includes branching out into other instruments and products that help us manage liquidity. ETFs have been a sort of poster child over the last decade-plus, but we’re following closely as liquidity builds in some other instruments, such as credit futures and we are working and extending our derivatives offering and competency in general, to give ourselves different and arguably better options in a given scenario.”
Lars Salmon
Head of Fixed Income Trading, Fidelity
What Will Define Fixed Income Investing by 2030?
Asked what they believe will be the defining challenge for fixed income investors by 2030, respondents give a wide range of answers. Across them, three broader themes emerge.
1: Building Portfolios for Uncertainty
Resilience and adaptability feature strongly throughout the responses. Leaders expect shorter market cycles, geopolitical shocks and changing economic conditions to make reliance on a single market outlook increasingly difficult.
The emphasis is shifting towards portfolios capable of responding to a wider range of outcomes while continuing to deliver attractive risk-adjusted returns.
“The defining challenge will be building portfolios that can survive being wrong about the future.”
“Become better at dealing with uncertainty rather than trying to predict every market move.”
“More flexibility than ever will be needed to adjust portfolios to a macroeconomic and geopolitical environment that is becoming more unpredictable.”
2: Preserving Liquidity When Conditions Change
Liquidity appears repeatedly in respondents’ expectations for 2030, particularly in relation to market stress.
The concern is less about normal trading conditions and more about what happens when many investors need liquidity simultaneously. This reinforces the importance firms are already placing on liquidity management and gives the theme a clear progression from execution in Chapter One to portfolio resilience here.
“In my opinion, liquidity will matter most when investors least expect it. The real test will be whether you can exit a position when everyone else is trying to do the same thing.”
“As bond markets become more complex, investors will need reliable liquidity sources and efficient trade execution, especially during market stress.”
“Finding enough liquidity during periods of market stress could become more challenging, especially for less frequently traded bonds.”
3: Combining Technology with Investment Judgement
Technology is also changing what will be expected from investment teams. Respondents anticipate greater use of AI and automation, alongside growing volumes of market information and increasingly sophisticated analytical capabilities.
Yet human judgement remains prominent in how leaders describe the future. The challenge will be deciding which signals matter, understanding when models can be trusted and developing the skills to use new technology without losing investment discipline.
“Know when to trust a model and when experience suggests that the model may be missing something unusual.”
“The human side will remain important. Technology can identify opportunities but experienced investors still need to decide whether those opportunities make sense.”
“By 2030, investors may have more analytical power than ever but still face the same fundamental problem uncertainty about what happens next.”
Preparing for a Wider Range of Outcomes
The investment environment emerging from Chapter Three is defined by several sources of uncertainty operating simultaneously.
Interest rates remain critical, but geopolitical risk, inflation and currency volatility are close behind. Regulation and technology are changing alongside them.
For portfolio teams, flexibility is becoming increasingly valuable. Improving liquidity management is already the leading strategic priority, while the open-ended responses show leaders thinking more deeply about resilience, access to liquidity during stressed markets and the ability to adapt portfolios as conditions change.
Technology will give investors more information and greater analytical power by 2030. The advantage will come from using those capabilities with discipline, supported by reliable data, strong liquidity management and investment strategies designed to perform across a wider range of market environments.
