Rates rally as investors react to risk-off fears

February’s market narrative is defined by a renewed belief in earlier Fed easing, driving a powerful rally in Treasurys and a constructive start for fixed income, even as volatility persists on the long end of the curve. Credit markets are navigating heavy issuance and modestly wider spreads, with mortgage-backed securities buoyed by large agency purchases and investors increasingly focused on security selection amid AI-driven disruption in the software sector. Abroad, Japan’s decisive political outcome and likely fiscal stimulus are putting yen and JGBs in sharper focus, adding another layer to global relative value opportunities.

At the same time, questions around Fed leadership, policy direction and potential efforts to contain long-term yields keep curve dynamics uncertain. Private credit remains an area of growing concern as softer conditions, rising nonperforming loans and tighter liquidity intersect with opaque software exposure across funds. In this environment, short to intermediate US fixed income appears well positioned to balance yield, total return potential and liquidity while allowing investors to calibrate credit risk thoughtfully.