Diverging Central Banks Calls for Active Management

For years, central banks around the globe have tended to move in the same general direction when it comes to trimming rates. However, that is increasingly not becoming the case.

Some central banks, like the U.S. Federal Reserve, seem slated to continue cutting rates to some degree in 2026. Others, like the European Central Bank, appear relatively unlikely to cut rates further in this new year. This may make it difficult for advisors and investors to plan their fixed income exposure across different global markets.

Inflection points like these can benefit from an experienced perspective. Recently, the team at BNY Investments examined the fixed income opportunities ahead for the U.S., Europe, and emerging markets. In the 2026 outlook, Brendan Murphy, Head of Fixed Income, North America at Insight Investment, and Ella Hoxha, Head of Fixed Income at BNY Investments Newton, broke down the state of play for each of these three fixed income sectors.

In Europe, BNY Investments noted that uneven growth and uncertainty in France are straining the European Central Bank’s case for further rate cuts. The BNY Investments team notes that it could be worth focusing more on country-level dynamics. They look to countries with more attractive opportunities, such as Spain and Germany.

Meanwhile, many emerging markets are also presenting interesting investment opportunities, according to the BNY Investments outlook. The outlook notes that countries in Latin America and Asia have been trimming their rates down, while maintaining a flexible policy approach to adapt to potentially slowing growth. In particular, the BNY Investments team cited Brazil, Peru, and Colombia as countries worth watching.

“Opportunities are becoming more idiosyncratic, and investors who stay nimble and selective across regions, duration and credit quality may be well positioned to capture them,” the BNY Investments team added.

U.S. Rate Environment May Call for Active Short Duration

For the United States, the BNY outlook assessed that the Fed’s rate cuts will particularly benefit fixed income securities positioned towards the front of the yield curve. However, risks and concerns regarding U.S. deficits make the longer end of the curve a tougher sell.

The BNY Mellon Ultra Short Income ETF (BKUI) could help folks looking to capitalize on opportunities on the short end of the yield curve. BKUI is an actively managed fund that looks to cultivate an average fixed income portfolio duration of one year or less.

To pick fixed income securities for its portfolio, BKUI’s management team blends a top-down and bottom-up investment process. This is done to cultivate lower volatility while maintaining access to higher-income opportunities.

BKUI’s approach to short-duration bond exposure has given the fund compelling yield performance thus far. As of January 7, 2026, the fund has a current yield of 4.25%.