With the Bank of Japan standing out as a notable exception, most central banks lowered short‑term interest rates in 2025. Tension between a slowing labor market and stubborn inflation has made each decision harder to calibrate for the U.S. Federal Reserve, however, and fixed income markets have taken notice.
Far from unanimous, the year-end interest rate cut reveals a divided committee. The official outlook still has 2026 and 2027 penciled in for one additional reduction each, but those forecasts hinge on official data that has been muddied by the government shutdown. Investors appear hesitant to assume that meaningfully lower monetary policy is guaranteed; without a pronounced economic downturn, this easing cycle may be nearing its limits.
We will not mince words: business investment has been extraordinary. At the same time, employment growth has cooled, prompting debate about whether this spending will ultimately broaden out or remain localized to a relatively select few. One camp argues that, given time, these investments will lift productivity and hiring; the other worries that they are masking underlying softness.
Less subtle have been expanding fiscal deficits, which, we note, approach post-war levels. Global government debt has eclipsed $100 trillion, of which America claims more than a third, with debt-to-GDP ratios near 120% and growing. Japan crested 200% for more than a decade without catastrophe. Simply put, there isn’t a known threshold to trigger a crisis event. Slowing growth, higher interest rates, and central banks showing little appetite at bond auctions—credit concerns originate from the surrounding context and may explain the directional trend of long-dated yields climbing since the turn of the decade.
More novel, less embedded developments are found in the private sector. There has been a surge in corporate debt issuance over the quarter, and even here, AI shows its influence. Hyperscalers issued $121B in corporate debt in 2025—over $90B was raised in the final three months of the year alone. While these companies remain highly profitable with strong credit ratings, their willingness to lever up balance sheets signals both the scale of ambition and competitive pressure to jockey for leadership. With heavy upfront costs and back-loaded revenues, long-term financing is needed to bridge the funding gap, translating into upward supply pressure.
Figure 5: The Institutionalization of Innovations
Length and capital deepening of notable innovations from 1760–2040
Source(s): Morgan Stanley Research. *Private equity, venture capital, and sovereign wealth funds. **Asset-backed securities, commercial mortgage-backed securities.
Fixed income markets are more dynamic than some give credit for. Short‑end yields are sensitive to central bank policy, while long‑dated issues focus on fiscal risks and inflation expectations. Deep in the midst of one secular trend (e.g., government debt) and likely at the start of another (e.g., the AI buildout), allocations based on single-point forecasts could be at risk of misbalancing fiscal concerns, government spending, and growth potential.
In this light, selection across duration, quality, and sectors carries weight as a stabilizing force for portfolio construction.
Inflation‑linked bonds offer near‑term protection as tariff and policy effects work through the system. Municipals remain attractive on an after‑tax basis for intermediate holdings. Agency mortgage‑backed securities appeal as well. If Treasury yields fall, prepayments may rise in a healthier environment with more reinvestment options, whereas investors can keep collecting today’s spreads if housing market paralysis persists.
Source(s): Bloomberg Finance L.P. As of December 31, 2025.
Fulcrum Equity Management, LLC, doing business as Fulcrum Wealth Management Management, is an investment adviser registered with the SEC. Fulcrum Wealth Management only conducts business in jurisdictions where it is properly notice filed, or is exempted from such filing requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.
Content should not be viewed as personalized investment advice. All investments and strategies have the potential for profit or loss. Index performance does not represent results obtained by Fulcrum Wealth Management and does not reflect the impact that advisory fees and other expenses will have on the returns. There are no assurances that an investor’s portfolio will match or exceed any particular benchmark. Alternative investments are speculative, may be susceptible to fraud, involve a high level of risk, and may experience significant price volatility. You could lose all or a substantial part of your money, and your interest may be illiquid. They may involve complex tax structures and higher fees.
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Q4 Quarterly Insights: Fixed Income Markets
With the Bank of Japan standing out as a notable exception, most central banks lowered short‑term interest rates in 2025. Tension between a slowing labor market and stubborn inflation has made each decision harder to calibrate for the U.S. Federal Reserve, however, and fixed income markets have taken notice.
Far from unanimous, the year-end interest rate cut reveals a divided committee. The official outlook still has 2026 and 2027 penciled in for one additional reduction each, but those forecasts hinge on official data that has been muddied by the government shutdown. Investors appear hesitant to assume that meaningfully lower monetary policy is guaranteed; without a pronounced economic downturn, this easing cycle may be nearing its limits.
We will not mince words: business investment has been extraordinary. At the same time, employment growth has cooled, prompting debate about whether this spending will ultimately broaden out or remain localized to a relatively select few. One camp argues that, given time, these investments will lift productivity and hiring; the other worries that they are masking underlying softness.
Less subtle have been expanding fiscal deficits, which, we note, approach post-war levels. Global government debt has eclipsed $100 trillion, of which America claims more than a third, with debt-to-GDP ratios near 120% and growing. Japan crested 200% for more than a decade without catastrophe. Simply put, there isn’t a known threshold to trigger a crisis event. Slowing growth, higher interest rates, and central banks showing little appetite at bond auctions—credit concerns originate from the surrounding context and may explain the directional trend of long-dated yields climbing since the turn of the decade.
More novel, less embedded developments are found in the private sector. There has been a surge in corporate debt issuance over the quarter, and even here, AI shows its influence. Hyperscalers issued $121B in corporate debt in 2025—over $90B was raised in the final three months of the year alone. While these companies remain highly profitable with strong credit ratings, their willingness to lever up balance sheets signals both the scale of ambition and competitive pressure to jockey for leadership. With heavy upfront costs and back-loaded revenues, long-term financing is needed to bridge the funding gap, translating into upward supply pressure.
Figure 5: The Institutionalization of Innovations
Length and capital deepening of notable innovations from 1760–2040
Source(s): Morgan Stanley Research. *Private equity, venture capital, and sovereign wealth funds. **Asset-backed securities, commercial mortgage-backed securities.
Fixed income markets are more dynamic than some give credit for. Short‑end yields are sensitive to central bank policy, while long‑dated issues focus on fiscal risks and inflation expectations. Deep in the midst of one secular trend (e.g., government debt) and likely at the start of another (e.g., the AI buildout), allocations based on single-point forecasts could be at risk of misbalancing fiscal concerns, government spending, and growth potential.
In this light, selection across duration, quality, and sectors carries weight as a stabilizing force for portfolio construction.
Inflation‑linked bonds offer near‑term protection as tariff and policy effects work through the system. Municipals remain attractive on an after‑tax basis for intermediate holdings. Agency mortgage‑backed securities appeal as well. If Treasury yields fall, prepayments may rise in a healthier environment with more reinvestment options, whereas investors can keep collecting today’s spreads if housing market paralysis persists.
Source(s): Bloomberg Finance L.P. As of December 31, 2025.
Fulcrum Equity Management, LLC, doing business as Fulcrum Wealth Management Management, is an investment adviser registered with the SEC. Fulcrum Wealth Management only conducts business in jurisdictions where it is properly notice filed, or is exempted from such filing requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.
Content should not be viewed as personalized investment advice. All investments and strategies have the potential for profit or loss. Index performance does not represent results obtained by Fulcrum Wealth Management and does not reflect the impact that advisory fees and other expenses will have on the returns. There are no assurances that an investor’s portfolio will match or exceed any particular benchmark. Alternative investments are speculative, may be susceptible to fraud, involve a high level of risk, and may experience significant price volatility. You could lose all or a substantial part of your money, and your interest may be illiquid. They may involve complex tax structures and higher fees.
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