Having tamed runaway inflation, most central banks are now aligned in cutting rates. But as we saw in 2024, that doesn’t mean smooth sailing. This is a time of acute geopolitical uncertainty, from conflicts in the Middle East and Ukraine to the impact of 2024’s elections during a “Super Election Year” when 72 countries went to the polls.

In particular, President-elect Trump and a Republican Congress may enact policy changes that could reshape the world. Conjecture around these policies has contributed to elevated volatility across the capital markets.

Given likely policy changes in 2025, the regional mix of economic outcomes may change too. Overall, however, the trajectory for growth and bond yields remains slower and lower, in our view. Below, we share our expectations for 2025, as well as seven strategies for capitalizing on today’s favorable environment for bond investors. 

Growth: Anticipating the Known Unknowns

We expect global growth to fall short of consensus expectations in 2025. Diverging growth will likely drive how much further interest rates fall in each region, with yields potentially falling more in Europe, for example, than in the US.

European economies, struggling to return to meaningful growth post-pandemic, are most vulnerable to an external shock that could push the region into recession. Existing challenges—both structural and geopolitical—could be exacerbated by new uncertainties, such as snap elections in Germany and the policies of the incoming US administration. We think these challenges could result in slower growth, deeper rate cuts and further yield declines than the market currently expects.

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