Macro Talking Points
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Thanks for the TIPS
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The IMF is cautiously optimistic about global growth, but more selectivity ahead
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AI expectations ripple through fixed income
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Heightened volatility highlights risks of concentrated markets
Time to get real.
At 2.74%, the US 10-year real yields are historically quite high. This, to us, suggests that real rates exposure through Treasury Inflation-Protected Securities (TIPS) may make sense, especially if one believes that inflation risks may be underpriced. The 10-year inflation break-even currently stands at 2.34%, which does seem a bit low given the challenging inflation backdrop.[1] There are of course risks to this view. If the Fed turned out to be more hawkish in the period ahead, or if nominal UST yields were to rise further out of growing fiscal concerns, real rates would continue to climb, thereby hurting a long TIPS exposure. Having said that, we believe that the current macro regime, which is characterized by strong growth but overheating risks, is supportive of TIPS.
A resilient global economy – but an increasingly selective one.
The IMF’s latest World Economic Outlook (WEO) offers a cautiously stronger global picture. It raised its 2026 growth forecast to 3.1% from 3.0% in July, while leaving 2027 unchanged at 3.4%. Despite higher energy prices and persistent geopolitical uncertainty, the global economy continues to expand. But the more important story is not how fast the world is growing – it is where that growth is coming from. Upgrades were concentrated in economies benefiting from AI investment and deeper participation in technology supply chains. The IMF lifted its Euro Area forecast to 1.1% from 0.9% and its UK forecast to 1.3% from 1.0%, supported by stronger AI investment and defense spending. By contrast, China was revised down to 4.5% from 4.6%. Global growth is becoming more concentrated: just 32 economies now account for 95% of growth, down from 54 in April. Inflation also remains sticky. The IMF expects global inflation of 4.7% in 2026, reflecting higher energy prices and demand from the AI investment cycle.[2] Stronger growth should support risk assets, particularly companies exposed to AI, infrastructure and capital spending. But the same forces are also pushing borrowing costs higher. Large fiscal deficits, heavy sovereign issuance and rising demand for capital are lifting long-term bond yields and the risk of volatility. Higher discount rates could challenge equity valuations, especially where prices depend heavily on distant earnings. Fixed income offers a different proposition. Higher yields may create near-term volatility, but they also provide a more attractive entry point and stronger prospective long-term returns. The investment conclusion is clear: growth is narrowing and outcomes are diverging across countries, sectors and asset classes. In this environment, identifying the winners may matter far more than simply owning the market (contribution from Karis Burrell, Insights Analysis Sr. Analyst).
Also read: How Important is the Corporate AUD Bond Market?
AI expectations ripple through fixed income.
Last week was a turbulent week for the AI sector. Softer-than-expected guidance from OpenAI and Anthropic unsettled AI-linked assets ahead of their anticipated IPOs. Revenue concerns quickly spread to publicly traded suppliers, data-center operators and cloud partners, with the sharpest moves in lower-quality credit. CoreWeave’s longer-dated unsecured bonds fell into distressed territory, ending the week at spreads above 1,000 basis points as investors reassessed its exposure to model providers’ compute demand. The repricing extended well beyond high yield. As AI growth expectations weakened, US Treasuries rallied despite hotter-than-expected CPI and PPI data. The move was led by the long end, with 10- and 30-year yields falling 17 basis points over the week.[3] Markets appeared more focused on the growth implications of an AI slowdown than on near-term inflation pressure. That matters because AI investment has supported manufacturing, while strong asset performance has bolstered consumer spending through the wealth effect. A more material slowdown could therefore weigh on both business activity and household spending. AI is no longer just an equity theme: it is increasingly shaping high yield, credit spreads and government bond yields. As the AI cycle evolves, diversification across assets that can perform under different growth and inflation outcomes will be critical (contribution from Dave Peterson, Lead Analyst, Strategy and Insights Group).
Heightened volatility highlights risks of concentrated markets.
This past week’s increase in market volatility highlighted fragility in sentiment around the AI trade, with CoreWeave emerging as a focal point for broader risk-off positioning. Investors used weakness in the name as a reason to reassess exposure across the AI ecosystem, particularly in areas where positioning and expectations had become increasingly crowded. Concentration risk persists, with semiconductors and other AI-adjacent companies leading the selloff, reinforcing how much market performance has depended on a relatively narrow group of beneficiaries tied to the AI buildout. When leadership becomes this concentrated, any shift in sentiment or fundamentals can create outsized moves across the broader market. At the same time, higher Treasury yields make elevated valuations harder to defend and raise the hurdle rate for AI-related investments, particularly those requiring significant upfront capital spending with returns expected further into the future. As the earnings season ramps up, results will need to provide tangible evidence that the enormous levels of AI-related capital expenditure are translating into real and sustainable revenue growth and earnings (Contribution from Mike Miranda, Strategist, Strategy & Insights Group).
1 Sources: Bloomberg, as of 16 October 2026.
2 Sources: IMF World Economic Outlook October 2026, ‘Resilience Under Strain, Urgent Choices’.
3 Sources: Bloomberg & BLS as of 16 October 2026.
