From Cuts to Supply: How Duration Became the New Volatility

This article offers a focused insight into one of the core mechanisms shaping markets in 2026. The full Market Outlook 2026 provides the broader, integrated context across macro, public markets, private capital and digital assets.

For most of the past decade, fixed income lived inside one dominant story: central banks would eventually cut, yields would fall, and duration would behave. That framing no longer explains the world described in the Market Outlook 2026.

The key shift is stated plainly: “The defining fixed-income theme of 2026 is not where policy rates go next, but how markets price duration risk.”

In other words, the question is moving from direction to absorption – who holds duration, at what price, and with how much tolerance for volatility.

Duration is back – and it is the volatility driver

Fixed income volatility is increasingly shaped by a different mix of forces than the simple “next central bank decision”. The drivers are bond supply, inflation compensation, and investor tolerance for duration.

This matters because those forces do not fade just because policy rates stop rising. When supply is heavy and inflation persistence remains a constraint, the long end can reprice even in an environment where growth still holds up.

From policy dominance to the supply channel

A central constraint on sentiment is inflation persistence. Inflation appears to have bottomed in 2025 at levels still meaningfully above pre-pandemic norms, with services and wages singled out as the areas to watch.

With inflation persistence as the backdrop, the market impact flows through a repricing of term premia, which lifts long-end yields and tightens financial conditions even without overt policy tightening.

That takes the market into a regime where the long end behaves less like a passive reflection of “future cuts” and more like a live referendum on credibility, inflation risk, and duration supply.

Curve pressure and the hurdle rate reset

The investment implication is explicit:

• curve steepening pressure persists
• long-duration complacency is penalised
• higher risk-free yields raise the hurdle rate across assets

These are not abstract statements. They are a redefinition of what “risk” means in portfolios.

When the risk-free anchor is higher and less stable at the long end, the discount rate becomes a gatekeeper across markets – not only in rates, but in how equities, private assets, and growth narratives are priced.

Why duration repricing spills into equities and private markets

The broader cross-asset setup is continued expansion with rate-driven pricing and rising selectivity.

In public equities, it describes a bifurcation – leadership concentrated in AI-centric mega-cap technology, with selective rotation elsewhere. The point here is not the equity story itself, but the rate story underneath it: when duration risk reprices, dispersion rises and the market becomes less forgiving of valuation stretch.

In private markets, the same constraint shows up through the cost of capital and the exit environment. The state of public markets feeds into private outcomes via discount rates, multiples, and the exit window.

The one question for 2026: who warehouses duration?

If you want one question that captures the shift, it is this:

Who is willing to hold long-duration exposure – and at what price – when supply, inflation compensation, and term premia are the active variables?

That question sits behind the macro framing of narrower margins for error and more structural volatility.

Signals to watch in 2026 – signals, not predictions

Mechanisms matter more than headlines:

• Inflation persistence and its pathway into term premia and the long end.
• The market’s capacity to absorb bond supply without higher inflation compensation.
• Whether duration tolerance holds up when volatility resurfaces.
• Whether curve dynamics remain a source of cross-asset repricing pressure.

Bottom line

In this framework, 2026 is not defined by a single “cut cycle” narrative. It is defined by how duration risk is priced in a world where supply and inflation compensation matter – and where that pricing sets the hurdle rate for everything else.

If you want the integrated view – how this supply-driven duration regime connects to global equities, private-market liquidity filters, regional capital cycles, and digital assets – the full Market Outlook 2026 is built to connect those dots.