The year 2025 has begun with volatility in fixed income markets, largely driven by fluctuations in 10-year Treasury yields. Inflation concerns and uncertainty regarding trade policy and the Federal Reserve’s monetary strategy have contributed to the unpredictable landscape. According to UBP, “The Fed remains cautious about further rate cuts due to persistent inflation, leading to a higher-for-longer rate environment.”
Higher-for-Longer Rates and Economic Growth
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Conclusion: A Nuanced Approach to Fixed Income in 2025
While UBP maintains a cautious outlook, they emphasize that “investment-grade bonds currently yield more than 5% – one of the highest levels in many years.” This yield provides a cushion against potential rate and spread shocks, making negative returns unlikely.
UBP’s strategy for 2025 revolves around focusing on carry, diversifying spread sources, and carefully managing duration. By maintaining a short duration stance (approximately three years on average), they aim to navigate economic shifts while still capturing opportunities where value exists. “Navigating the fixed income landscape in 2025 requires a nuanced approach, balancing risk with opportunity.”
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