LOS ANGELES, Jan. 29, 2026 (GLOBE NEWSWIRE) -- Payden & Rygel has released its 2026 unconstrained bond market outlook, “2026: A Tale of Two Cities – Investing Across a Bifurcated Global Economy,” arguing that concentrated growth, uneven household finances, and diverging emerging‑market trajectories are creating a more fragmented opportunity set for fixed income investors.
An unconstrained bond strategy is a fixed income approach that is not tied to a traditional bond benchmark, giving managers broad flexibility in how to seek returns across interest rates, credit sectors and regions.
Inspired by Charles Dickens’ famous opening line, Payden & Rygel contends that today’s global economy is defined by simultaneous “best of times” and “worst of times” dynamics: resilient headline growth and firm labor markets alongside persistent inflation pressures, higher borrowing costs, and widening gaps in wealth and regional performance. In this environment, the firm argues, traditional averages and benchmark‑centric approaches can obscure where investors are truly being compensated for taking risk.
“This cycle is marked more by differences than similarities,” said Eric Souders, Managing Director and Lead Strategist on the global unconstrained fixed income team. “To invest successfully in an environment where certain sectors, households, and regions prosper while others face challenges, investors need a flexible, global fixed income strategy focused on adaptability and careful security selection.”
The outlook identifies three key “two cities” divides shaping bond markets in 2026:
- Concentrated growth in an AI‑driven economy. A powerful investment cycle tied to artificial intelligence, semiconductors, data centers, and power infrastructure is supporting earnings and valuations for a relatively narrow group of beneficiaries. Other sectors continue to face sluggish productivity growth, tighter financial conditions, and limited pricing power. Payden & Rygel believes this backdrop supports a continued willingness to own credit but favors idiosyncratic security selection over broad corporate beta.
- Asset owners versus non‑owners under inflation. Higher‑income, asset‑owning households, those with exposure to equities, real estate, and fixed‑rate debt locked in before the hiking cycle, have generally remained resilient as rising asset prices and solid employment offset higher living costs. By contrast, lower‑income and non‑asset‑owning households have borne a disproportionate share of inflation in essentials such as housing, food, and insurance, with higher rates further limiting homeownership and wealth accumulation. As a result, the strategy favors exposure to prime and super‑prime consumers, particularly in residential mortgage credit, while remaining cautious on below‑prime auto asset-backed securities and unsecured consumer credit.
- China versus the rest of the emerging markets (EM).
China continues to contend with a prolonged property downturn, weak consumer confidence, unfavorable demographics, and diminishing returns to stimulus, challenges that appear more structural rather than cyclical. In contrast, many other emerging markets are benefitting from relatively robust growth, moderating inflation, and improved policy credibility, supported by a weaker U.S. dollar and healthier balance sheets. The firm emphasizes that “China does not equal emerging markets,” and that structural dispersion across EM elevates the importance of country and currency selection.
Within unconstrained fixed income portfolios, Payden & Rygel indicates a preference for:
- Sourcing credit risk through structured opportunities where collateral and dispersion create value, such as select commercial mortgage‑backed securities, rather than broad collateralized loan obligations (CLO) or generic corporate beta.
- Focusing consumer exposure on prime and super‑prime borrowers and defensive sectors such as grocery retail, while avoiding areas most reliant on stretched discretionary spending.
- Using emerging markets, across both hard‑currency sovereign debt and local markets, as a preferred expression of beta, given relatively attractive valuations, improving fundamentals, and an under‑owned position relative to U.S. assets.
“The question for bond investors is not simply whether growth or inflation will move up or down in aggregate,” the outlook concludes. “It is how very different realities across sectors, households, and regions intersect, and where markets are failing to differentiate adequately between them.” Download the report here.
About Payden & Rygel
Payden & Rygel is one of the largest privately-owned global investment advisers, managing approximately $166.6 billion in assets. Founded in 1983, the firm specializes in the active management of fixed income and equity portfolios, serving a diverse range of institutional clients worldwide. With clients that include central banks, pension funds, foundations, and corporations, Payden & Rygel offers a comprehensive suite of investment strategies through separately managed accounts, US mutual funds, and Irish-domiciled funds (subject to investor eligibility). Headquartered in Los Angeles, the firm also maintains offices in Boston, London and Milan. To learn more, visit www.payden.com.
Media Contact: Kate Ennis, DAI Partners PR, ennis@daipartnerspr.com, (301) 580-6726
This material reflects the firm’s current opinion and is subject to change without notice. Sources for the material contained herein are deemed reliable but cannot be guaranteed. This material is for illustrative purposes only and does not constitute investment advice or an offer to sell or buy any security. Past performance is no guarantee of future results.
