No further drag on US growth
Among the wide range of economic indicators released in recent weeks, one publication deserves particular attention: the PMI Manufacturing Index, which provides valuable insight into prospects within the US manufacturing sector. Since early 2023, this indicator had remained anchored below 50, a level signalling a contraction in activity, and thus acted as a drag on GDP growth, which in recent years has been supported primarily by activity in the services sector.
In January, however, the PMI Manufacturing Index unexpectedly surged back into expansionary territory, significantly exceeding economists’ expectations. Should this momentum be sustained, it is likely to translate into an acceleration of the US economic cycle in 2026.
This renewed momentum in economic activity, particularly in the industrial sector, combined with a continued easing of monetary policy by the Federal Reserve, constitutes an extremely constructive scenario for equity markets. After several weeks of consolidation, stock markets may well resume their upward trajectory.
Bonds: stability in long-term yields and the primacy of carry
Although the bond market has gradually regained visibility following the inflationary shocks of recent years, fixed income is unlikely to be the most dynamic asset class in terms of absolute performance in 2026. In our central scenario, the year should be characterized by relative stability in long-term yields, both in the United States and in Europe, within an environment where performance will derive primarily from carry rather than from any meaningful capital gains potential.
Recent developments in the United States have, moreover, provided a significant source of reassurance for investors. The decline in annual inflation to 2.4%, down from 3.0% as recently as October 2025, confirms the continuation of the disinflationary trend. This movement, which follows a temporary rebound linked to the introduction of new tariffs, reinforces the view that price pressures remain broadly contained. In this context, the Federal Reserve has greater room to continue the gradual easing of its monetary policy in 2026.
Nevertheless, this monetary accommodation is expected to mainly affect the short end of the yield curve. Long-term segments remain constrained by several structural factors. On the one hand, nominal growth expectations remain resilient, particularly in the United States. On the other hand, public financing needs, stemming from elevated budget deficits and substantial issuance volumes, are exerting persistent upward pressure on long-term yields. In Europe as well, concerns regarding the sustainability of fiscal trajectories are limiting the potential for a significant decline in long-term rates.
In this environment, developed market government bonds offer limited upside potential. Swiss bonds remain among the least attractive, with yields close to zero across a large portion of the curve. Within the credit segment, risk premia are at historically low levels, leaving little room for further spread compression. Here again, performance is likely to be driven essentially by coupon income.
Accordingly, in 2026, the anticipated stability of long-term yields calls for a disciplined and selective approach. Within this constrained universe, emerging market debt in local currencies retains relative appeal. It benefits from still-elevated real yields, monetary cycles that are often more advanced than in developed economies, and, in several countries, a gradual improvement in macroeconomic fundamentals. For investors willing to accept higher volatility and currency risk, this segment represents one of the few areas within fixed income still offering a meaningful yield differential.
This week’s figure: 0.9095
With the exception of 15 January 2015, the date on which the Swiss National Bank abandoned the minimum exchange rate, the euro has never traded at such a weak level against the Swiss franc.
At the beginning of the year, the Swiss currency is once again posting a marked appreciation against most major currencies.
Author
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A graduate of the University of Geneva in Business Administration with a specialisation in finance, Daniel Varela began his career in 1989 as a fixed‑income portfolio manager. He joined Banque Piguet & Cie in 1999 as Head of Institutional Asset Management, also overseeing the Bank’s fixed‑income analysis and management. In 2011, he took charge of Piguet Galland’s investment strategy and the Investment Department. He has been a member of the Executive Committee since January 2012, serving as Chief Investment Officer.
