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For years, the world’s central banks moved like a synchronised swimming team. The US Federal Reserve (Fed) moves, everyone else follows. Same formation, same timing…

But that formation just broke, and it’s becoming the defining theme for rates in 2026: the great central-bank divergence. Rather than  moving together, central banks are increasingly setting policy based on their own inflation and growth story instead of following the Fed’s lead.

As of August 2026, four of the world's biggest central banks were doing different things, for different reasons.

• The RBA held its cash rate at 4.35%, pausing after a run of hikes, still wary with inflation above target.
• Switzerland sat near zero, with barely any inflation to worry about.
• Japan hiked, unwinding decades of near-zero rates as its economy picks up.
• The US Fed held too, though split internally on reversing last year's cuts.

Same asset class, very different conditions

Quick refresh Bond prices tend to move in line with interest rates. So when central banks were all cutting or hiking together, bond markets around the world would often move in roughly the same direction too.

Not anymore.

Right now, a hike in Japan can push Japanese bond prices down (higher rates make existing bonds with lower yields less attractive) while a rate hold in the US keeps American bond prices steady, all in the same week.

That’s where geographic diversification comes into play. Spreading bonds across different countries gives investors exposure to a wider range of interest rate cycles and market conditions, while reducing the impact if one central bank makes an unfavourable rate call.

Australia is a small slice of a very big pie

Keeping an entire fixed income allocation in Australia might feel like the safer option, but Australia represents only around 1% of the global bond market.

Compared with much larger markets like the US (50%) and Europe (30%), that’s a relatively small corner of a very large asset class.

So investing in bonds globally widens your exposure beyond a single market. In other words, if a shock hits the Australian economy specifically, a local inflation surprise, a housing wobble, it doesn’t automatically drag down bonds issued somewhere else.

Enter: Franklin Templeton

Franklin Templeton offers a range of fixed income strategies, covering different focuses including diversification, income and total returns.

Their fixed income ETFs may suit investors looking to add bond exposure to a broader portfolio. Each ETF's PDS or TMD will show you exactly which countries and currencies it covers, so you can check the geographic spread.

Find out more about Franklin Templeton’s fixed income capabilities

You don't need to predict where central banks move next. Spreading your bonds across a few different countries spreads your risk the same way, so no single call can throw off your whole portfolio.

That's the whole point of going global.

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Disclaimer:

All information contained in the Flux app, www.flux.finance, www.joinflux.com, app.flux.finance and any podcast of Flux Media Pty Ltd (ABN 27 639 804 345) is for education and entertainment purposes only. It is not intended as a substitute for professional financial, legal or tax advice. While we do our best to provide accurate information on the podcast, we accept no responsibility for any inaccuracies that may be communicated.

Flux does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) and ASIC RG 36.66. Flux Technologies Pty Ltd provides general advice on credit products under our own Australian Credit Licence No. 530103. The product information presented does not constitute an offer and we are not recommending or suggesting any particular product.

This is issued for information purposes only and does not constitute investment or financial product advice. It expresses no views as to the suitability of the services or other matters described in this document as to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision. Neither Franklin Templeton Australia, nor any other company within the Franklin Templeton group guarantees the performance of any Fund, nor do they provide any guarantee in respect of the repayment of your capital.

Please read the relevant Product Disclosure Statement (PDSs) and any associated reference documents before making an investment decision. In accordance with the Design and Distribution Obligations requirements we maintain Target Market Determinations (TMD) for each of our Funds. All documents can be found via www.franklintempleton.com.au or by calling 1800 673 776.

Issued by Franklin Templeton Australia Limited (ABN 76 004 835 849, AFSL 240827).