Q4 2025 Fund Commentary

Commentary and opinions are provided by T. Rowe Price Group Inc.

Market commentary

The global fixed income market, as measured by the Bloomberg Global Aggregate Index (CAD-hedged), rose over the fourth quarter of 2025. Global government bond performance was mixed because of regional fiscal and monetary policy developments. The U.S. Treasury yield curve steepened because of softening labour market data and two interest rate cuts from the U.S. Federal Reserve Board (Fed). Short-dated yields fell, with intermediate yields little changed and longer-dated yields moderately higher.

In the eurozone, German sovereign yields rose, reflecting expectations for fiscal expansion and higher public borrowing and bond issuance in 2026. U.K. gilt yields fell as the government secured more than double the fiscal headroom projected in March 2025, with further support from a December interest rate cut. Japanese government bond yields rose amid stronger economic data, anticipation of fiscal expansion under new Prime Minister Sanae Takaichi and monetary tightening in December. Sovereign yields in Canada also rose as investors reassessed the 2026 monetary policy outlook following strong employment data.

Performance

Security selection contributed to the Fund’s performance. Within global sovereign bonds, select emerging market sovereign bonds performed well because of stronger risk appetite among investors. Exposure to global high-yield corporate bonds contributed to performance as credit spreads narrowed on solid demand.

At a currency level, exposure to the Brazilian real and Egyptian pound contributed to the Fund’s performance amid U.S.-dollar weakness. A short position in the Taiwan dollar also contributed to performance as capital outflows weighed on the currency. Exposure to the Japanese yen detracted from performance as the currency weakened on moderating expectations for interest rate hikes.

With respect to duration (interest rate sensitivity), duration positioning in the U.S. contributed to the Fund’s performance. Underweight exposure to longer-term maturities contributed to performance as long-term U.S. Treasury yields rose. Overweight duration in Colombia detracted from performance as local yields rose. The country experienced high inflation, which led to rising expectations for interest rate hikes.

Portfolio activity

The sub-advisor moved to a short position in the U.S. dollar amid shifting Fed sentiment. Exposure to the Kazakhstani tenge was added to the Fund on increased optimism for a ceasefire between Russia and Ukraine.

The Fund’s holding in global high-yield corporate bonds were increased because of a more positive outlook on economic growth. Emerging markets corporate bond exposure was also increased. Similar to high-yield bonds, the sub-advisor believes that credit sectors may perform well if economic growth accelerates.

The Fund’s India duration allocation was sold as strong gross domestic product data and currency weakness may prevent the country’s central bank from cutting policy interest rates. The Fund’s holding in the U.K. was shifted to neutral based on rising political uncertainty.

Global investment-grade corporate bond exposure was reduced as these bonds look less attractive relative to high-yield bonds, in the sub-advisor’s view. The Fund’s duration in the eurozone was reduced based on resilient growth.

Outlook

Uncertainty remains about the Fed’s path in 2026 amid lingering questions on labour markets, inflation and upcoming Fed leadership changes in May. The sub-advisor has a positive outlook for credit risk and believes that sovereign yields in the U.S. and Europe should see upward pressure due to stronger-than-expected growth and more new supply.

The sub-advisor believes that recession risks in the short term are low, with the market underestimating economic growth in the U.S. The One Big Beautiful Bill Act could boost U.S. growth more than consensus anticipates. Its tax cuts could widen the fiscal deficit and push long-term U.S. Treasury yields higher as supply pressures rise. Sticky U.S. inflation, combined with recent policy interest rate cuts and a higher growth outlook, could further increase longer-term yields. Similarly, Germany’s spending is fiscally expansionary for the eurozone, which may also lead to higher long-dated yields, in the sub-advisor’s view.

The Fed could keep interest rates unchanged through the first half of 2026 while assessing labour and inflation trends. In the eurozone, inflation may stabilize, but the European Central Bank may cut interest rates if economic activity in the eurozone remains sluggish.

In credit sectors, the sub-advisor’s view is positive for the near term. Despite historically tight valuations, riskier assets should perform well if the global economy remains resilient. However, the sub-advisor will monitor the Fund’s credit risk exposures as higher sovereign rates may drag on riskier assets over the longer term.