In the wake of a particularly robust year for fixed income returns across sectors—with notably little differentiation between them—it is instructive to examine return patterns over the prior decade.
As we enter the home stretch of 2025, we are struck by the current state of valuations in the fixed income markets. We are particularly struck by the divergence between broad market valuations and the growing weakness in various economic sectors.
Despite the relative calm in markets, Q2 2025 was undeniably a roller coaster. The quarter opened with volatility fueled by “Liberation Day” tariffs and closed on a more composed financial note—though uncertainty around international trade policy remains unresolved.
As we enter the second quarter of 2025, there is much to consider for fixed income markets and the broader economy.
Given the substantial price action in rate markets, we consider what outcomes the market is currently pricing, the risks to this “consensus” view, and what we think will or will not occur as the new administration begins its term.
