Allspring Global Investments
A diversified portfolio of dollar-denominated investment-grade fixed income bonds with intermediate (5- to 10-year) maturities has the potential to generate 6–7.5% total return over the next 12 months if interest rates fall approximately 50 basis points. A higher-quality bias is appropriate as the business/credit cycle advances and credit risk premiums remain compressed.
Allspring Global Investments
In global fixed income we have moved up in quality in favor of more defensive subsectors. This is expressed through overweights in health care and communications and an underweight in cyclicals. We are also overweight short/intermediate- dated maturities and underweight duration in the longer-dated part of the yield curve.
Allspring Global Investments
Credit spreads may stay tight given the supportive fundamental and technical backdrop. Waiting for a better entry point may cause investors to miss out on attractive carry.
Amundi Investment Institute
With the Fed and ECB expected to cut policy rates all the way to long-term neutral levels by mid-2025, Treasuries are expected to lead performance among government bonds, while investment grade credit will also benefit. The low recession probability and non-restrictive fiscal policies (at least in the US) suggest bonds will be key to portfolio diversification, fulfilling their income-generating function.
Amundi Investment Institute
Opportunities are appealing in investment grade and short-maturity high-yield credit, leveraged loans, EM bonds and private debt.
Apollo Global Management
We expect credit fundamentals to remain robust. This, combined with elevated all-in yields and steep yield curves, can continue to attract inflows into the asset class. We believe this should support valuations even as the room for further compression is increasingly limited.
Apollo Global Management
Given the combination of tight credit valuations and beta compression, we do not see attractive risk-reward trade-offs in extending spread duration or moving down the rating spectrum. We also see better value in private credit with the private-public spread still elevated.
AXA Investment Managers
On the credit side, despite spreads being tight, the additional return and the continued healthy state of corporate balance sheets underpins the attractiveness of both investment grade and high-yield bonds. Of course, investor sentiment towards credit will be subject to the uncertain evolution of policy and geopolitical risks but on a risk-adjusted return basis, credit is attractive.
AXA Investment Managers
We continue to see US high-yield, a short-duration asset class, delivering healthy returns.
Barclays Private Bank
A neutral duration stance seems appropriate, and investors should be on the lookout for rate volatility, as a signal to extend duration selectively. In the credit market, securitised credit could be a useful diversification tool, while relative value and carry options abound in the BB-rated segment. Finally, emerging-market debt provides a vast pool of opportunities for investors to improve a portfolio’s risk-return profile.
BlackRock Investment Institute
Persistent deficits and sticky inflation in the US make us more positive on fixed income elsewhere, notably Europe. We are underweight long-term Treasuries and like UK gilts instead. We also prefer European credit – both investment grade and high yield – over the US on cheaper valuations.
BlackRock Investment Institute
We prefer short- and medium-term investment grade credit, which offers similar yields with less interest rate risk than long-dated credit. We also like short-term government bonds in the US and euro area and UK gilts overall.
BNP Paribas Asset Management
Investment-grade credit should provide superior returns relative to government bonds as spreads remain contained alongside steady economic growth. While spreads are narrow – both in the US and in the euro zone, and both for investment grade and high yield – they are relatively better for euro zone investment-grade credit, and we see this asset class as offering the best risk-adjusted returns.
BNP Paribas Asset Management
Investors thinking about the year ahead should be aware of the sizeable corporate refinancing wave coming up in the next 12-18 months, which could lead to higher yields (and lower prices). US mortgages can be a useful substitute, offering a higher yield in combination with an implied triple-A rating given their government backing.
Capital Group
All in yields around 5% for a high-quality corporate bond market seems very attractive. If you also factor in potential rate cuts, then total returns of mid to high single digits over the next 12-18 months look to be a very reasonable expectation.
Capital Group
Investors can capture a healthy level of income within high-quality bonds. Security selection may be a driver of return, with attractive opportunities in agency mortgage bonds and securitized credit.
Capital Group
Economic growth accompanied by interest rate cuts may offer a favorable tailwind for US corporate bonds across the ratings spectrum. Combined with attractive yields, US corporate investment-grade (BBB/Baa and above) and US high-yield bonds may benefit income-seeking investors.
Capital Group
Our portfolios currently have a bias towards higher-quality investment grade credit as we believe this area offers better relative value given tighter spreads. That said, our analysts believe the attractive level of yield offered, improved credit quality of the index and relatively short duration of US high yield provides a good source of diversified carry for mixed asset portfolios.
Carmignac
We prefer short-term investment grade corporates where a potential widening in credit spreads would be more than offset by the lowering of rates; and high-yield bonds with a favorable technical backdrop in a context where net issuances have been negative and are expected to be continuously met by investor appetite over the coming quarters.
Citi
Credit tends to react earlier to deteriorating economic conditions in the US, and spreads are so tight that the convexity favors underweights to hedge our equity overweights in case of rising risk aversion, maybe on weaker US growth outcomes. We prefer to implement the underweight outside of the US, as US credit should benefit from lower corporate taxes and deregulation. We therefore go underweight EU IG and EM sovereign credit.
Columbia Threadneedle
Fixed income should start 2025 from a good base: yields are attractive and central banks are engaged in supportive, rate-cutting cycles, but disparities will exist. Stock and credit selection will be paramount.
Columbia Threadneedle
The rate-cutting cycle should create a favorable backdrop for high-quality bonds, but we think credit dispersion will increase in 2025. Balance sheet health across industries is not uniform, with highly leveraged companies particularly within high yield potentially vulnerable.
Deutsche Bank
For credit, 2025 starts at incredibly tight levels and as such the most likely outcome is wider spreads, even if this will be within the breakevens for most parts of the market.
DWS
Corporate bonds should remain attractive in 2025 due to their high current interest yield and overall robust economy. However, we do not expect yield spreads to narrow further. We prefer bonds with investment grade status to those without.
Fidelity
Fixed income investors face tight spreads that are priced for benign economic conditions. With public sector deficits projected to expand, the prospect of tariffs and trade disputes, and ongoing geopolitical tension, there is a case that less optimistic scenarios are being underpriced. This represents a potential source of value in credit markets.
Fidelity
Our multi-asset team recommends looking beyond the previous stars to patches of the market that have been more neglected in the enthusiasm for AI and tech. They highlight US mid-caps, for thematic investors future financials, for income investors non-US duration, CLOs, and short dated high-yielding credit, and for drawdown-aware investors the value of absolute return strategies.
Franklin Templeton
Income-oriented investors may want to consider shortening durations until it becomes clearer where interest rates are headed, and despite relatively tight spread levels increasing exposures to corporate credit, mortgage credit and asset backed securities is appropriate.
Goldman Sachs Asset Management
Rate cuts favor fixed income. We believe asset allocation decisions that land on bonds may prove rewarding in 2025. We see opportunities to ride the easing cycle, capture income across corporate and securitized credit, and use a dynamic investment approach across sectors and regions.
HSBC Asset Management
There are favorable opportunities from high all-in yields elsewhere in credits, with fundaments solid, but many segments are “priced for perfection.” This leaves little buffer against any downturn in credit quality.
HSBC Asset Management
We think shorter duration credits, like asset-backed securities, look interesting. They benefit from a higher-for-longer scenario given their floating rate nature. Securitised credits have high starting income levels and exhibit low correlations to traditional fixed income – making them a useful diversifier for portfolios.
HSBC Global Private Banking
We have a neutral stance across almost all bonds’ segments, apart from the Japanese government bonds, where we retain an underweight position. However, we continue to see corporate credit, including dollar investment grade bonds and global high yield as a good way of diversifying multi-asset portfolios and generating income by locking in elevated yields.
Invesco
Our optimisation process unambiguously favors bank loans, investment grade credit and commodities, while gold and equities are out of favor. When faced with difficult choices, we are now erring on the riskier side (given our view that economies will accelerate).
Invesco
Long-term government yields will be mixed but most yield curves will steepen. Credit spreads will widen slightly and defaults will rise a little. Bank loan spreads will narrow marginally but defaults will rise a little.
Janus Henderson
Historically tight corporate spreads suggest securitized sectors and quality high-yield corporates may be better ways to add risk. Given the stage of the cycle, diversification and quality should be prioritized.
Jefferies
Overall we are positive credit for 2025, but with spreads at current tight levels, see a limited room for outperformance. In our view, credit will remain a total yield story rather than a spread story in 2025.
Jefferies
In our view there is still a fair bit of cash sitting on the sidelines waiting to be invested. US money market funds have crossed $7 trillion. As Fed rates move lower, the cash will need to be invested and support fixed income in general and credit in particular.
JPMorgan Asset Management
We like high-quality duration in securitized markets like agency MBS and asset-backed securities. We also favor the full spectrum of corporate credit (IG, high yield, bank loans and convertible bonds). These sectors would benefit in a soft landing scenario and continue to provide attractive yields even though spreads remain tight.
JPMorgan Chase & Co.
We are broadly constructive on credit with mild widening in euro high grade and modest narrowing in dollar high grade.
LGIM
We think yields on fixed income remain attractive by the historical standards that matter – the memories of current market participants. We consider this to likely be positive for fixed income strategies as we expect significant inflows in search of these yields.
Lombard Odier
In fixed income, we keep our preference for corporate bonds, which will provide higher returns than government bonds. The latter will be challenged by rising budget deficits and public debt, generating more yield volatility. We therefore focus on where we see least pressure for bond yields to rise, notably Germany and the UK.
Morgan Stanley
Corporate credit in 2025 may also be a story of two halves. The moderating environment in the first half may sustain corporate credit, but the story changes in the second half as equities may outperform.
Morgan Stanley
Morgan Stanley strategists believe that leveraged loans offer the best balance of risk and reward, ahead of investment grade and high yield bonds, and the US market is more attractive than Europe.
Morgan Stanley
Fixed-income markets may benefit in the first half of 2025 as modest growth and lower inflation prompt additional interest rate cuts. In the second half of the year, relative value should shift toward equities if policy supports a meaningful pickup in mergers and acquisitions. But timing the rotation will be everything.
Ned Davis Research
We reduced our exposure to 100% of benchmark duration, and closed out our curve steepeners. We are overweight MBS and underweight CMBS and ABS. We are marketweight everything else. Policy uncertainty is set to drive a wide range of outcomes. Fair value ranges from 4% to 5.25% on the 10-year Treasury. Credit remains richly valued. Continue to favor loans over fixed-rate debt.
Northern Trust Asset Management
Within fixed income, we continue to favor high yield bonds because of elevated yields, strong fundamentals and a supportive market backdrop. Credit ratings upgrades are outpacing downgrades, and the overall credit quality of the high yield market remains historically high
Nuveen
We favor high yield (especially higher quality segments that can weather slowing growth), securitized assets (where asset-backed and commercial mortgage-backed segments offer value) and senior loans (which look increasingly attractive given the higher-for-longer rates environment). We are moving toward a more neutral view on preferred securities given recent strong performance, although we see value in $1,000 par securities where spreads offer value.
Nuveen
We have a generally unfavorable view toward Treasuries (we see better value elsewhere) and investment-grade bonds (spreads are tight and the duration profile is longer than we prefer).
Pictet Asset Management
We are constructive on credit in the medium term. Even though corporate bond spreads have fallen to near all-time lows, company balance sheets remain healthy with ample cash. Default rates are low and falling, in line with our forecast for the average default rate over the next five years of 2.7%. What is more, credit will benefit from further interest rate cuts.
Pimco
US agency mortgage-backed securities (MBS) offer an attractive and liquid alternative to corporate credit. Additionally, asset-based sectors, in both consumer and non-consumer areas, provide appealing opportunities for private market investors, particularly relative to corporate lending.
Pimco
We maintain a cautious stance given some complacency we see in corporate credit due to tighter valuations, favoring higher-quality credit and structured products. Lower-quality, floating-rate private market areas appear more vulnerable to economic downturns and interest rate changes than prices suggest, with credit risks poised to rise just as yields fall, potentially benefiting borrowers but hurting investors.
Principal Asset Management
As the year progresses, high-quality, longer-duration fixed income should outperform on a risk-adjusted basis as the inverted yield curve steepens and an economic slowdown becomes more apparent. Holding investment-grade paper should better position portfolios to weather an economic downturn and help reduce default risk.
Robeco
US investment grade credit, in particular, stands out with exceptionally tight spreads. In contrast, euro investment grade credit appears more attractive relative to the US, as spreads hover just below the 20-year median.
Russell Investments
Credit markets may have limited upside due to tight spreads, particularly in US high-yield and investment-grade bonds. This creates an opportunity to expand fixed income exposure into areas with more attractive risk/return trade-offs, such as emerging-market dollar bonds and private credit.
Schroders
The old-fashioned reason for owning bonds — to generate income — is back and we continue to argue for their inclusion in portfolios. Divergent fiscal and monetary policies around the world will also provide cross-market opportunities in fixed income and currency. Strong corporate balance sheets support the yield offered by credit markets.
Societe Generale
We again cut our exposure to government bonds on worsening fiscal metrics, debt-sustainability concerns and the threats from tariffs (EM local currency bonds cut 3 percentage points to zero). Credit, the “new cash,” now has an equal weighting to sovereign bonds, at 19%, this being driven by credit-rating upgrades.
State Street
While spreads across both investment grade credit and high yield debt are near historic lows, we are optimistic about prospects for fixed income assets next year, and see a generally favorable environment for advanced economy sovereign debt. Market sentiment swings and volatility could potentially create opportunities for investors to manage or extend duration.
Truist Wealth
We stay tilted to high quality bonds as yields remain elevated relative to the past two decades. We patiently seek a better tactical opportunity to upgrade credit, where valuations are rich.
UBS
Cash returns are set to diminish in light of further central bank rate cuts. Meanwhile, investment grade bonds offer attractive yields and potential for capital gains, with total expected returns in the mid-single-digit range in dollars.
UniCredit
Carry trade is set to be the name of the game for credit markets. The promising performance expected for European non-financials credit is fuelled by moderate macroeconomic growth in the euro zone and a credit cycle that is firmly in recovery mode.