Global central banks struck a cautious tone last week, balancing easing expectations against lingering inflation risks.

In the US, comments from Federal Reserve officials highlighted divisions over the future rate path. Minutes from the January meeting underscored renewed inflation concerns, with several policymakers open to rate hikes if price pressures persist. However, Fed members’ views are not all aligned: last week, Federal Reserve Bank of Chicago President Austan Goolsbee said further rate cuts are possible if inflation continues to move toward the 2% target, describing tariff-related price pressures as potentially transitory. He signaled openness to several cuts in 2026, contingent on clearer disinflation evidence, and welcomed the prospective nomination of Kevin Warsh to succeed Jerome Powell. By contrast, Governor Michael Barr urged holding rates steady until goods inflation shows sustained improvement, warning that AI-driven productivity gains may actually lift the neutral rate. Similarly, San Francisco Fed President Mary Daly noted stronger productivity could justify higher rates. Overall, Fed minutes and firm growth and inflation data drove rate cut expectations for this year marginally lower, with the end-2026 future rate rising 8bp to 3.08%.

In Europe, leadership uncertainty emerged at the European Central Bank. A FT report suggested Christine Lagarde may step down early, though she later reaffirmed her intention to complete her term. ECB rate expectations were barely affected by the news. In the UK, data showed inflation easing to 3%, keeping the Bank of England on course for possible spring rate cuts, albeit amid sticky services inflation. BoE rate expectations marginally increased last week and future markets price two more rate cuts this year with almost certainty.

Central banks in Romania, in New Zealand and in Indonesia kept their key rate unchanged last week.

Credit

Credit spreads ended the week marginally softer in EUR investment grade, while tightening in EUR high yield, even as escalating tensions between the United States and Iran pushed crude oil prices to seven-month highs.

U.S. trade policy returned to the forefront following a temporary easing of AI-related volatility. The U.S. Supreme Court ruled against the reciprocal tariffs introduced by the Trump administration, although the President retains alternative legal avenues to pursue similar measures. Meanwhile, the European Union may delay ratification of last July’s signed trade agreement.

U.S. investment grade delivered a modest negative total return of -0.2%, driven by slightly higher Treasury yields, erasing part of the previous week’s gains.

Year-to-date, EUR investment grade and high yield fund inflows have outpaced their U.S. counterparts. EUR investment grade recorded another week of positive returns and resilient demand, marking 34 consecutive weeks of inflows, supported by moderating Bund yields over the past fortnight.

European investment banks reported a 16% increase in 2025 trading income, broadly in line with U.S. peers, reflecting strong client activity amid volatile market conditions.

Both U.S. and EUR high yield posted positive weekly returns of +0.2% and +0.3%, respectively, supported by tighter spreads. EUR high yield funds extended their streak to six consecutive weeks of inflows.

Against a backdrop of tariff uncertainty, AI-related fatigue, and persistent geopolitical tensions, maintaining sectoral and geographical diversifications continue to make sense, while staying invested to capture coupon carry.