Global bond markets: Themes to watch for Q2 – Mike Foggin

In this episode of FidelityConnects, host Pamela Ritchie interviews Mike Foggin, Portfolio Manager of the Fidelity Global Bond Fund, about the evolving dynamics in global bond markets heading into Q2 2026. Foggin highlights a dramatic shift in market expectations, with yields rising sharply due to heightened uncertainty around inflation, energy prices, and geopolitical tensions—particularly the war in the Middle East. Despite volatility in rates and equities, credit markets remain resilient, with tight spreads suggesting a lack of 'capitulation' despite growing risks. Foggin emphasizes that the surge in issuance from AI-driven hyperscalers and energy infrastructure projects is reshaping fixed income, creating new benchmarks for risk and liquidity. He notes that international bond markets are less exposed to AI disruption than their U.S. counterparts, making global diversification a strategic advantage. With central banks hesitant to act amid conflicting data, Foggin sees a window for active managers to deploy capital during periods of market stress, particularly when credit spreads overreact. He concludes that while volatility is likely to persist, the current environment offers opportunities for disciplined, diversified fixed income investing. Key takeaways include: 1) Global bond portfolios offer natural diversification from AI-driven sector risks; 2) High-quality, long-dated issuance from hyperscalers and utilities is reshaping market liquidity and risk benchmarks; 3) Credit spreads remain tight but not cheap, suggesting room for re-pricing during a risk-off event; 4) Active management is crucial to navigate rapid shifts in sentiment and liquidity; 5) Energy price volatility and geopolitical uncertainty are likely to remain structural drivers; 6) A de-escalation in conflict could trigger a swift rebound in fixed income demand; 7) Investors should prioritize flexibility and manager skill over passive ETFs during volatile windows; 8) The current environment favors diversified, duration-tolerant portfolios with active risk allocation.