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Global Fixed Income Strategy Monthly Report

March 31, 2025
Turgut Kisinbay
Turgut Kisinbay
Director Fixed Income Research
James Ong
James Ong
Director, Derivative Portfolio Management
The landmark of Toronto CN Tower rising straight up alongside compact corporate skyscrapers in sunrise.

In our regularly updated macroeconomic analysis, we offer an outlook for interest rates and currencies – and look at which fixed income assets are favoured across a range of market environments. 

In this edition:

Macro

Uncertain US policy, especially around tariffs, has caused us to downgrade our 2025 US growth forecast. However, we do not expect the economy to tip into a recession. We expect slower economic activity to lead to three Federal Reserve rate cuts this year, in June, September and December.

Credit

Today’s US high yield market looks very different than it did several years ago. On several counts, the make-up of the high yield market has improved compared to the past, in terms of overall credit quality, fundamentals and other key characteristics. Taken together, we feel more comfortable that the downside risk of the high yield asset class is lower than it has been historically.

Interest rate outlook

We maintain an overweight stance on European interest rates. The European Central Bank may be compelled to implement deeper rate cuts than are currently expected. We are also overweight UK rates as economic data have been consistent with gradual Bank of England rate cuts.

Currency outlook

We have upgraded our euro stance to neutral, given the current uncertain macroeconomic backdrop. However, longer term, we expect structurally higher European growth, potentially leading to increased European yields and a stronger euro. We are underweight the British pound. Growth remains lacklustre and, while inflation remains sticky, we expect the Bank of England to continue cutting rates, which could weigh on the pound.

The bottom line

We speak with IFI portfolio managers about the factors driving US investment grade and how they are navigating the current fixed income environment.

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Catch up on the last few editions:

FAQs

Whether you’re looking for income, diversification, capital preservation or total returns, our global fixed income teams have the strategies, the scale and the flexibility needed to match your objectives as markets evolve.

We have more than 200 fixed income specialists who invest across regions, investment styles and capital structures. Their expertise spans the entire fixed income spectrum, covering credit, rates and currencies.

  • $313.72 billion in fixed income assets under management
  • 45+ years investing in fixed income markets

Source: Invesco as of 31 December 2022.

Fixed income investments can offer several important benefits to investors:

  • Diversification: Adding fixed income securities to a portfolio can help diversify it and reduce its overall risk, as bonds typically behave differently to other investment instruments like equities.
  • Risk reduction: Fixed income investments are deemed less risky than stocks, as the issuer is contractually obliged to meet the income payments and repay the principal sum on the redemption date. In the event of bankruptcy, fixed income instruments also sit higher up the capital structure than equities. This means that the issuer will meet its debt obligations before looking after its shareholders.    
  • Liquidity: Many fixed income securities are highly liquid and can be easily bought and sold in the market.

While fixed income securities are deemed less risky than equities, there are still some key things to look out for:

  • Interest rate risk: When interest rates go up, bond prices go down. This is because, in the new higher rate environment, new bonds will be issued on more attractive terms. As such, investors looking to sell their existing bonds will need to do so at a discount in order to compete.
  • Inflation risk: When investors buy a bond, they commit to tying their money up for a set period of time. If inflation is high or rises during the lifetime of the loan, its value will be eroded and their money will have less purchasing power when it is repaid on the redemption date. Inflation also erodes the purchasing power of the income earned.
  • Credit risk: When you invest in a business or government, there is always a risk that they will go bankrupt and fail to repay the loan. Furthermore, if they run into difficulties, they may struggle to meet interest payments and default on their obligations. Fixed income investors should carry out thorough credit analysis before buying a bond to make sure the issuer is financially sound.
  • Market risk: If an investor is unable to hold a bond until maturity and needs to sell it on the secondary market, price fluctuations resulting from the overall performance of financial markets could lead to losses.
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    The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. 

    Important information

    This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. Views and opinions are based on current market conditions and are subject to change.

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