New U.S. tariffs sparked market volatility and recession fears. While the Fed holds off, stress is rising in fixed income—though yields remain attractive for long-term investors.
This year, we are looking to the US to drive the market’s direction. We believe the US economy will continue to soften, which will spur the Fed to cut rates three times. In other words, that soft landing that we were expecting last year will likely materialise this year. When rates are lower, the USD typically weakens. And this creates a goldilocks scenario for Emerging Market Debt.
2025 was widely expected to be a good year for bonds. The US economy seemed to have found a floor, inflation looked to be contained, and interest rates had a long way to fall. The combination of high yields and capital appreciation from falling rates was, if a bit simplistic, a reason to be excited about the outlook for compelling total returns. But 2025 is looking increasingly like it will be anything but simple, writes Olivier De Larouziere.