Competition for capital is heating up. Persistent government deficits combined with a long overdue acceleration in corporate capex means bond markets face a wave of new supply. Is this a risk or opportunity?
Is this the right time for corporates to be spending?
Why not? Tariff clouds are clearing, most central banks have dialled back restrictive monetary policy, and in aggregate the world will benefit from additional fiscal stimulus in 2026. Rates markets face some well-flagged challenges – a bumpy disinflation journey and resilient but uneven growth (obscured by unreliable economic data). But for credit, this backdrop isn't all too concerning. Some stickiness in prices suggests that corporates have sufficient pricing power to pass rising costs (or tariff effects) on to consumers. Credit doesn't need blockbuster economic growth to perform well; it just needs to steer clear of recession.
A capex boom is overdue
The past 30 years has seen a marked decline in fixed capital formation in developed economies, as production was generally outsourced to a booming Asian economy (accelerated by China's accession to the World Trade Organisation in 2001). The western corporate world saw great benefits from cheap Chinese manufactured goods, including the ability to keep domestic wages depressed. As Western jobs were exported to Asia, so too went investment in productive capacity, prompting a long trend of falling hours worked, stagnant productivity and low capital investment (Figure 1).
Figure 1: Investment as a share of GDP (%)
Source: Bloomberg, IMF, as of February 2026
This trend was compounded by the global financial crisis in 2008, which drove a decade of economic austerity and – more importantly – a concerted deleveraging of private sector balance sheets (Figure 2).
Figure 2: Debt-to-GDP growth in the US
Source: Bloomberg, IMF, as of February 2026. Data indexed to 31 December 2008 = 100
Why is the capex trajectory changing? There is nothing quite like an inflation shock to drive social change. Lower income Western workers are demanding real wage gains now. Political priorities have also changed – the slow but deliberate path of deglobalisation, which started back in the first Trump administration, has empowered greater labour market collectivism.
Politicians are tuned into the changing tide. Note, for example, the jump in tax relief on business investment across several developed economies. In the US particularly, the One Big Beautiful Bill Act (OBBBA) allows for 100% expensing of capital expenditure (capex) depreciation in the year of purchases, and the ability to add depreciation/amortisation for the purposes of interest expense deduction. Combined, these measures reduce the aftertax cost of debt-fuelled capex for corporates.
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