January 31, 2026
Commentary
The monthly commentary discusses recent developments across the Ninepoint Diversified Bond, Ninepoint Alternative Credit Opportunities and Ninepoint Credit Income Opportunities Funds.
We’re only one month into 2026, and already it feels like a long year! There are no shortages of headlines to keep us all on the edge of our seats. Separating the wheat from the chaff, what really matters for fixed income investors this year will revolve around what central banks do (or don’t do), and how risk assets, more specifically credit, behave.
Interest Rates
Here, the Bank of Canada is firmly on hold, and the Governor has made it abundantly clear that the bar for further cuts is very high. Inflation is currently in a good place, with disinflationary tailwinds due to lower housing costs, offset by stubbornly high food prices. The economy was weak in 2025, but has since stabilized in a low-growth mode. The biggest risk on the calendar is the USMCA renegotiation later this summer, which could throw another wrench in the economic gears. Until that risk has been successfully navigated, we expect the BoC to keep some powder dry and avoid committing one way or another.
In the U.S., Chair Powell’s Fed is on hold, most likely until the end of his Chairmanship in May. The labour market, which had weakened last year, seems to have stabilized, and U.S. growth has been surprisingly resilient. With fiscal spending and continued AI capex (the guidance from hyperscalers for 2026 CAPEX was well above consensus), most expect at least the first half to be strong. There is thus no need for additional monetary easing.
However, with a new, Trump appointed, Fed Chair joining the Board just in time for the June FOMC meeting, it wouldn’t be too surprising if his first move was to advocate for a rate cut. The President has been so vocal he wants lower rates, it would be shocking if his new appointee didn’t follow orders at the first opportunity. This dynamic has the potential to be quite interesting. Will Kevin Warsh, the incoming Chair, garner enough influence around the committee to get the votes he needs for that inaugural cut? Will Chair Powell stay until the end of his term as governor in 2028? Will Lisa Cook, whose case is in front of the Supreme Court, remain at the Fed? Even if we now know who has been nominated to replace Powell, there are still so many unknowns with regard to the composition of the committee, it is still challenging to gauge the Post-Powell Fed’s policy reaction function.
So, with both the Fed and BoC on hold for the foreseeable future, interest rates across the curve have been slowly steepening. Yield curves in Canada and the U.S. are still too flat (Figure 1 below), and as discussed at length in our 2026 Outlook, we expect curves to steepen further in 2026. Accordingly, we are avoiding investments with too much duration out on the curve, where rising rates could hurt performance.
Credit
The other thing we’re carefully watching is credit markets, where appetite for risk has been relentless. As shown in Figure 2 below, Investment Grade (IG) credit spreads in North America are now through their post 2008 tights. Let that sink in for a second. IG index spreads have not been this tight since 2006, and they are trading well through that after adjusting for index composition (they have more duration and lower credit quality, which, all else equal, should warrant higher default compensation).
We understand why people like IG credit: low historical default rates, more income, what’s not to like? Those are the same reasons we have preferred credit securities over government bonds in our strategies since inception.
But given the current level of valuations, the wall of new issues supply expected this year (see our 2026 Outlook for details) and overall deterioration in credit quality due to corporate actions such as M&A, it is hard to be “all-in” in credit right now.
That’s why having a broad toolbox and the flexibility to invest across borders, irrespective of benchmarks and indices, in sectors and subsectors that, we believe, offer the best risk reward. For example, at the moment, we are fully invested, of course, to maximize carry, but use options on Credit Default Swap Indices (CDX IG) to lower the credit risk of the funds. Figure 3 below shows the historical spread on CDX IG, along with horizontal lines to detail the strike prices on our options.
For a very small amount of premium (these trades are often designed to be premium neutral, or zero cost), we buy protection (put spread, or payer spread to be more precise) between 55 basis points and 65 basis points on the index. To reduce the cost, we sell upside (equivalent of a call, or receiver) at 47.5 basis points. It is conceptually similar to a position in a stock with a short call funding a put (a collar): limited upside, but with downside protection. Except that, with credit spreads in general, the upside at these levels is quite limited, so the trade-off or risk-reward is much more attractive in our view.
This type of hedging strategy allows us (and our clients) to own credit securities, benefit from the higher yield they offer, but if market conditions were to deteriorate, the volatility of the portfolios will be managed and maintained at low levels. In the current environment of elevated valuations, we believe that this makes a lot of sense.
Fund Discussion
Ninepoint Diversified Bond Fund
The Ninepoint Diversified Bond Fund (Series F) returned 44 basis points in January, trailing the Canadian index by about 10 basis points. Lower credit risk in the fund is the main reason for the performance differential. The fund’s duration remains very low at 2.3 years, whereas spread duration was down to 1.6 years, mostly due to credit hedges. The fund’s yield-to-maturity was 5% at month end. Unhedged FX exposure was a smidge elevated at 11%, and has since come down. This is entirely due to active risk management: the monetization of hedges and the restriking of new hedges at more attractive levels post month-end. Expect this number to come down over the coming months.
NINEPOINT DIVERSIFIED BOND FUND - COMPOUNDED RETURNS¹ AS OF JANUARY 31, 2026 (SERIES F NPP118) | INCEPTION DATE: AUGUST 5, 2010
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
10YR |
15YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|---|---|
Fund |
0.44% |
0.44% |
0.57% |
2.39% |
3.60% |
5.41% |
1.59% |
3.01% |
3.36% |
3.58% |
Ninepoint Alternative Credit Opportunities Fund
The Ninepoint Alternative Credit Opportunities Fund ( Series F) returned 50 basis points last month, driven by solid credit market performance. Duration has drifted up a bit to 2.4 years, as we have adjusted how some short-term credit positions are funded, benefiting from the slope of the yield curve to capture additional carry. Some of our relative value positions in the USD market are also contributing to performance, while credit hedges allowed us to increase leverage a little bit (0.7x) as a way to increase yield. As of month-end, the fund’s yield-to-maturity was 6.2%.
Just like the Ninepoint Diversified Bond Fund, unhedged FX exposure was a smidge elevated at 14%, and has since come down. This is entirely due to active risk management: the monetization of hedges and the restriking of new hedges at more attractive levels post month-end. Expect this number to come down over the coming months.
NINEPOINT ALTERNATIVE CREDIT OPPORTUNITIES FUND - COMPOUNDED RETURNS¹ AS OF JANUARY 31, 2026 (SERIES F NPP931) | INCEPTION DATE: APRIL 30, 2021
1M |
YTD |
3M |
6M |
1YR |
3YR |
Inception |
|
|---|---|---|---|---|---|---|---|
Fund |
0.50% |
0.50% |
0.64% |
2.60% |
4.06% |
6.75% |
2.93% |
Ninepoint Credit Income Opportunities Fund
The Ninepoint Credit Income Opportunities Fund (Series F) returned 30 basis points net, a little less than the other mandates, primarily due to the valuation of a loan to a gold mining company. Otherwise, portfolio characteristics and changes were very similar to the Ninepoint Alternative Credit Opportunities Fund.
NINEPOINT CREDIT INCOME OPPORTUNITIES FUND - COMPOUNDED RETURNS¹ AS OF JANUARY 31, 2026 (SERIES F NPP507) | INCEPTION DATE: JULY 1, 2015
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
10YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|---|
Fund |
0.30% |
0.30% |
0.62% |
2.76% |
4.11% |
6.52% |
3.97% |
5.58% |
4.95% |
Until next month,
Mark, Etienne & Nick
As always, please feel free to reach out to your product specialist if you have any questions.