The Big Picture: First quarter 2025

The investment outlook for 2025 is optimistic for fixed-income returns, attributed to higher available yields. Despite a slowdown in global growth, positive trajectories are expected, with the US anticipated to surpass most other developed markets in growth. Inflation rates are nearing central bank targets globally, although the US remains an outlier with persistent inflation, providing central banks an opportunity to reduce policy rates.

Opportunities are identified in holding duration in select developed markets, such as Australia, the UK, and core Europe, alongside short-dated US Treasuries. The fundamentals of spread sectors are projected to stay supportive, with current valuations reflecting this. Select parts of the securitized and corporate bond markets also present attractive return potential.

Global growth and inflation trends are expected to continue, with goods price inflation slightly below pre-pandemic levels and services inflation slowing due to reduced wage pressures. While emerging market debt remains appealing, political risks have affected performance in some regions. The outlook emphasizes the significance of active management to navigate potential volatility, particularly with changes in US government policy.

In summary, a strong year for fixed-income markets is anticipated, with strategic investments in select spread sectors and DM government bonds offering promising returns. The focus on structured credit, especially commercial real estate and CLO tranches, and higher-rated bank loans, highlights targeted opportunities amid potential market volatility.