Key takeaways
Market insights at a glance
President Trump’s trade and foreign policy changes have created uncertainty and volatility in financial markets, leading to a divergence in fixed-income returns—with strong performance from US and many emerging market government bonds, and negative returns from Japanese and core eurozone government bonds. Despite this volatility, our outlook for fixed-income markets remains optimistic due to high overall yields, downshifting yet strong global growth and central banks’ capacity to cut rates if needed.
This quarterly summary is intended to aggregate the Firm’s current overall views and present an at-a-glance dashboard covering the following:
- Growth: Global growth remains positive due to resilient consumer activity and significant fiscal measures in the eurozone, while the US slowdown is driven by policy uncertainty and cautious behavior from consumers and businesses.
- Inflation: The overall trend shows inflation aligning with central bank targets. The US faces unique challenges due to tariffs and other factors, complicating its inflation path.
- Rates: Weaker US economic data, dovish Fed comments, tariff uncertainties, and Germany’s fiscal proposals have influenced US and German bond yields, while strong domestic indicators in Japan have impacted JGB yields.
- Monetary Policy: Central banks are likely to ease policy further due to restrictive current rates, subdued growth and inflation nearing targets.
- Credit Markets: Credit markets offer opportunities due to strong fundamentals, potential for rising stars in high-yield sectors and attractive valuations in CMBS.
- Geopolitics: Geopolitical developments, including US tariffs, EU fiscal plans and the Ukraine ceasefire are influencing global economic confidence and market stability.
Fixed-Income Outlook: Navigating Renewed Volatility and Policy Uncertainty
Markets have seen extremes since the start of 2Q25 as they attempt to digest the latest political manoeuvres. Tariff negotiations between the US and other key trading partners resulted in confusing headlines that often conflicted with what had been reported just days prior. It is unlikely that we will have a near-term resolution to the overall US tariff policy, but we remain hopeful that negotiations are progressing in the right direction for markets. However, we continue to anticipate that elevated volatility in fixed-income markets will persist over the short term both in terms of spreads as well as overall rate volatility. This may also present investment opportunities.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Fixed-income securities involve interest rate, credit, inflation and reinvestment risks and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Commodities and currencies contain heightened risks that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.
ETFs trade like stocks, fluctuate in market value and may trade above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.
Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks.
WF: 5363424