The challenges fixed-income markets face are rising, with inflationary pressures potentially denting bond prices as US President Donald Trump proceeds with tariffs, which could also depress global economic activity. These factors will play an important role in shaping the trajectory of bond markets in 2025, according to Eric Souders, director and portfolio manager with Payden & Rygel.
In a landscape of shifting economic forces and greater bond market volatility, ‘Bond Wars’ could unfold this year, and with that, a flexible and adaptable investment approach, or absolute return strategy, is required to deliver reliable income for investors and avoid capital losses on bonds, according to Mr Souders.
“As we move through 2025, the interplay of economic, fiscal, and political factors has created a landscape filled with both opportunity and risk for bond investors. We are likely entering a new regime characterised by higher volatility in interest rates, inflation, and credit spreads. The ability for portfolio managers to adapt, without being constrained by a bond benchmark, will become increasingly important this year in the face of greater uncertainty.
“Inflation dynamics remain in flux as a new US Treasury Department strategises the balance between fiscal and monetary conditions, and Trump’s second administration introduces important dimensions to policy and growth, such as tariffs and US-focused policies,” he said.
Mr Souders favours the flexibility to invest in certain fixed income asset classes while avoiding others, which will be key for investors retaining their capital.
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