Welcome back to the Weekly Fix. My name is Anne Greenwood, Institutional Portfolio Manager at RBC Global Asset Management. Last week, the Federal Reserve raised its policy rate for the first time since 2023 by a quarter point, to a range of 3.75%–4%. With resilient growth and persistent inflation, the Fed said the decision "will support a timelier return to the Committee's 2 percent goal." The median projection points to one more quarter point increase before year-end and we believe multiple hikes remain possible through early 2027.

Credit markets took the decision in stride, with spreads tightening back to near all-time tights by the end of the week. But the investment implications extend beyond the Fed's next few meetings. Persistent inflation, large fiscal deficits and substantial demand for capital support a longer-term view of higher yields and steeper curves.

So what does this mean for fixed income investors?

First, higher starting yields provide a stronger foundation for income and potential returns. But an attractive yield does not necessarily mean investors are being adequately compensated for credit risk. It is critical to assess both.

Second, where you invest along the curve matters. Further tightening could flatten the curve as shorter-term yields respond to a higher expected policy rate. Over time, however, persistent deficits and competition for capital could keep longer-term borrowing costs elevated—even when the Fed eventually has room to ease.

Third, financing AI infrastructure, power generation and the broader investment cycle is creating opportunities for lenders. But the quality of those opportunities depends on the cash flows supporting that debt.

As financing needs grow, borrowers—government, corporate or otherwise—may have to offer greater compensation to attract capital, particularly where balance sheets are stretched or future revenues remain uncertain. That is where financial strength can become a competitive moat. Companies with durable cash flows and manageable debt can continue investing when weaker competitors face financing constraints. Something that we have been seeing play out in the software sector for much of this year.

For investors, the question is whether those cash flows can support the debt if demand grows more slowly, projects take longer or financing stays expensive. With investment grade spreads around 77bps and high yield inside of 270bps, we see limited room for disappointment. Our focus is therefore on selective opportunities where pricing compensates us for the risks: resilient issuers, strong balance sheets and liquid securities that preserve flexibility as conditions change. Higher yields improve the opportunity to earn income. The discipline is making sure that income is supported by cash flows that can endure.

Thank you for joining us on today's episode of the Weekly Fix. See you next week.