As we close out 2025, it’s worth stepping back from the day-to-day noise of markets and reflecting on what has been a defining year for investors. The past twelve months reinforced an important lesson: markets are rarely linear, sentiment can change quickly, and disciplined portfolio construction matters far more than short-term predictions.

Commentary from Industry Leaders

This week, I summarised part of Fidelity’s 2026 outlook around inflation and fixed income. Marion Le Morhedec, Chief Investment Officer – Fixed Income at Fidelity International, cautions investors against becoming complacent about inflation as markets look ahead to 2026. While fixed income delivered exactly what it promised in 2025, which is reliable income and portfolio stability, she notes that the next phase will be more complex. Her central view is that U.S. inflation is likely to run higher than current market pricing suggests, even as economic growth moderates. This divergence could challenge expectations for aggressive central bank easing and has meaningful implications for bond markets, particularly longer-duration assets.

She highlights that credit markets remain attractive due to elevated starting yields, but stresses the importance of quality and selectivity, especially as spreads remain tight and default risks may rise if growth slows. Rather than chasing duration, Marion favours positioning that captures income while managing downside risk, including selective exposure to credit and emerging market debt where real yields remain compelling. Her message reinforces the need for fixed income portfolios to be actively managed, flexible and resilient, focused not just on rate cuts, but on navigating inflation uncertainty and policy divergence in the year ahead.

Economic News 

U.S. consumer prices rose less than expected in November, offering tentative signs that inflationary pressures may be easing. Headline CPI increased 2.7% year-on-year, below forecasts of 3.1%, while core CPI rose 2.6%, also under expectations. Monthly price increases came in at a modest 0.2% for both headline and core inflation. However, this report was released after the recent U.S. government shutdown, which disrupted data collection and led to the cancellation of October’s CPI release. As a result, economists have cautioned against reading too much into a single data point, despite shelter inflation slowing to 3%, an encouraging sign given its heavy weighting in the index.

For investors, the report was broadly supportive of risk assets. Softer inflation increases the likelihood that the Federal Reserve may ease policy further in the coming months, with markets now pricing a higher probability of a March rate cut. Equity futures rose following the release and bond yields declined, reflecting improved sentiment around monetary conditions. That said, the data disruption introduces uncertainty, and if inflation proves stickier once normal reporting resumes, markets could quickly reprice expectations. From a portfolio perspective, this reinforces the importance of diversification. Balancing growth exposure that benefits from lower rates with assets that can help cushion volatility if policy expectations shift again.

Market Snapshot 

• Australia: ASX up as uranium miners rebound.

• United States: Dow 0.14%, S&P 500 0.79%, Nasdaq 1.38%. 

• Bonds: US 10-year yield at 4.12% and Australian 10-year yield at 4.74%.  

• Gold: Declined overnight.

Key Events Coming Up

• Tuesday 23rd, December: US GDP (QoQ) (Q3) 

Investment Update

Tom Hennigan, Chief Operating Officer and Chief Risk Officer for Carlyle’s US Direct Lending business, provided an update on Carlyle Credit Solutions (CARS) and the broader US private credit landscape.  Carlyle today manages almost US$500 billion in assets, and Global Credit is now the firm’s largest segment, with over US$200 billion in AUM.  Within that:

• Private Credit is ~US$33 billion;

• US Direct Lending is ~US$16 billion, having tripled in size since the pandemic;

• CARS, at around US$2.5 billion, is the largest fund on the US direct lending platform.

Despite muted M&A markets, originations remain strong and are expected to set another record in 2025.  The portfolio remains focused on core US middle-market businesses across software, healthcare, financial services and business services — sectors with limited tariff exposure.

Terms, structure and portfolio discipline

• Spreads are at their tightest since the GFC, and upfront fees have compressed.  However, Carlyle continues to focus on first-lien senior secured loans with typical loan-to-value around 40%, implying ~60% equity beneath them.

• While covenant-lite structures are more common, Carlyle still negotiates springing financial covenants, plus a robust collateral package limiting collateral leakage and lien subordination.

• Tom stressed that many of the more aggressive liability-management exercises seen in broadly syndicated loans are not permitted under private credit documentation in CARS’ middle-market deals – an important differentiator for recoveries when things go wrong.

Carlyle’s focus remains on not stretching on credit to chase yield.  Instead, they are enhancing returns by reducing liability costs (private credit CLOs and refinancing of credit facilities).

Portfolio quality and return outlook

• As at 30 September, CARS’ non-accrual rate was ~1% of fair value;

• Over 70% of borrowers have improving operating metrics;

• Portfolio loan-to-value remains below 45%.

Forward-looking returns are now expected to be 9–11%, reflecting lower base rates but the same focus on stability, predictability and low volatility.

Finally, Tom addressed recent headlines such as First Brands and Tricolor.  Tom emphasised that these were not private credit deals and that within Carlyle they had all been reviewed and declined on credit grounds.  His broader message was that idiosyncratic situations will always occur, but that disciplined underwriting, integrated sector research across One Carlyle, and a dedicated workout team are key to maintaining low non-accruals and strong recoveries through the cycle.