This year the expectations in global capital markets hyear definitely changed route. Although the retrospective economic indicators still appear solid – unemployment is low, inflation has attenuated and company fundamentals are generally robust – investors show greater caution. The optimism that had reached its peak after the US elections led to the stages related to the reduction risks for growth. The markets reacted to this changed attitude with the correction of equity price lists, the expansion of credit spreads and the descent of Treasury returns. Underlines it Tannuzzo gene, Global fixed income manager of Columbia Threadneedle Investments
The Daily News sentiment Index is a high frequency indicator of the economic sentiment based on the lexical analysis of economic themed articles. Higher values indicate a more positive sentiment and lower values indicate a more negative sentiment. At the beginning of 2025, investors sThey waited for pro-crescita policies (deregulating and tax cuts) had precedence. The priority was instead given to the duties and the intensity of immigration policies, implementing measures that could erode growth. The US Federal Reserve (Fed) also recognized that the risks are downward unbalanced.
With the Investors intent on face with these challenges, the fixed income has regained its traditional role of effective diversifier element of the wallet. In such a context, it is essential to focus on high quality bonds and carefully select credit exposures.
What does the yields of the bond market leads
Since the beginning of the year, several factors have shaped the performance of the bond market:
- Less expectations for US growth:Economic growth in 2024 was solid, but the concerns of negative developments during 2025 increase. Geopolitical risks, uncertainty about political measures and the weakening of the trust of companies and consumers have undermined the optimism of investors.
- Uncertainty about inflation: Although the surge in 2022 inflation has been largely reabsorbed, the potential impact of the new duties is an element of concern. Investors, probably also because of the Reviewy Bias(projection in the future of recent results), fear a scenario in which inflation rekindle, which could force the Fed to maintain unchanged rates longer than currently planned.
- Public expenditure and pro-crescita policies outside the United States:Usually the US bond market that leads bond returns globally, but in recent weeks the world developments that engraved on the US markets have been on the last few weeks. In particular, expectations about tax stimuli and other pro-crescita policies in Germany and Japan have exerted raised pressures on US rates.
From the beginning of the year to today, the credit has submitted the duration. Despite this weakness, the credit markets have maintained an orderly trend and the buyers have shown themselves ready to exploit the improvement of the assessments. Today’s slight expansion of spreads is the function of the decline in Treasury returns, rather than a real weakness of the prices of corporate obligations. As expected in such a context, the high quality fixed rate debt has made better high yield securities, bank loans and other variable rate tools. Overall, however, credit remains somewhat expensive in historical terms. Always compared to the expectations of the beginning of 2025, the emerging markets have proved to be an unexpected source of superturns. Those who invest in the debt of emerging markets had already had to face similar tariff policies during the previous Trump administration, and risk prizes had been incorporated in prices last autumn. It is important to note thatand discussions on duties They concerned both the commercial partners of the developed markets, such as Europe and Canada and the economies of emerging markets such as China and Mexico in equal measure.
What will happen on the Fed and rates front?
There Fed left the rates unchanged in the last meetingbut has announced a slowdown in its quantitative tightening plan. This suggests a slight shift towards an expansive orientation, even if the cutting of the rates is not imminent. For the Fed, a complex game of balance is expected. The duties could push the inflation up, but also damage growth by reducing expenditure on consumption and business investments. This dynamic adds a further level of complexity to the decision -making process of the Fed. The American central bank has declared that it was willing to cut the rates twice this year. Before working in one direction, the Fed will probably want to see clearer signals on the evolution of the possible arm wrestling between the increase in inflation and the weakening of the demand.
Positioning of the wallets in the current context
The expansion of credit spreads has brought out bags of opportunities in the sectors less exposed to the risks related to trade and growth. The selection of securities will be important, since some sectors, such as cars and construction materials, undergo greater pressures due to duties and chokes along the production chains, while others, such as chemical industries and some consumer sectors, could show a better sealing capacity. We believe that the dispersion within the High Yield market is destined to increase and that the selection of securities will play a decisive role for returns.
One of the key themes of this year It is the return of the fixed income as an element of diversification of the portfolio. Unlike the last few years, in which the bonds have not always been able to protect from the discounts, the high quality fixed income has regained its role as the pad against volatility. Given the continuous uncertainty that looms on the equity markets, this dynamic is likely to maintain its relevance.
Investors – concludes the expert – must prepare for Conine change of economic prospects nand the course of the year. The fears for growth are increasing, uncertainty about political measures remains high and the next moves of the Fed will be carefully monitored. In such a context, it is essential to adopt a carefully calibrated and diversified approach to the construction of the wallet.
