Global Fixed Income Outlook & Strategy
By David Rolley, CFA, Portfolio Manager
As we monitor how current US tariff policies are affecting the markets, we have not seen a significant spike in inflation within the Consumer Price Index (CPI).
Market Recap & Outlook
As we monitor how current US tariff policies are affecting the markets, we have not seen a significant spike in inflation within the Consumer Price Index (CPI). May CPI rose 0.1%, at both core and headline levels, to stand at 2.8% core and 2.4% headline year-on-year.
The labor markets continue to move forward, where private payrolls added 140,000 new jobs in May, in line with April and above its two year monthly average. The unemployment rate remained unchanged at 4.2%.
We expect a modest narrowing of the US federal deficit to 6.5% of GDP or a bit less this year, widening to approximately 7% in Fiscal Year 2026. Bond vigilantes have influenced bond yields by pricing a 50bp risk premium into the 10-year yield.
Nothing to see here? Equity markets have bounced back since "Liberation Day." Credit Spreads are near historic tights and the 10-year Treasury yield is fluctuating between 4.3%-4.5% so far this month in June.
Our Strategy
We believe that complacency is not a good strategy. Some increase in costs and decrease in economic momentum remains our base case for the remainder of the year. In particular, we believe the labor force growth is set to weaken from reduced immigration, capital expenditure strength is very narrowly concentrated on AI and data centers, and export orders are vulnerable to trading partner retaliation. The market that is least complacent is the US dollar, which has remained near its 2025 lows. We believe that foreign investors may increasingly choose to diversify US-overweight equity and bond positions, and hedge US currency risk, which may help to keep the US dollar bear market intact.
Important Disclosures
Key Risks: Credit Risk, Issuer Risk, Interest Rate Risk, Liquidity Risk, Non-US Securities Risk, Currency Risk, Derivatives Risk, Leverage Risk, Counterparty Risk, Prepayment Risk and Extension Risk. Investing involves risk including possible loss of principal.
This marketing communication is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. Investment recommendations may be inconsistent with these opinions. There is no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. Information, including that obtained from outside sources, is believed to be correct, but Loomis Sayles cannot guarantee its accuracy. This information is subject to change at any time without notice. Market conditions are extremely fluid and change frequently.
Market conditions are extremely fluid and change frequently.
Diversification does not ensure a profit or guarantee against a loss.
Any investment that has the possibility for profits also has the possibility of losses, including the loss of principal.
There is no guarantee that the investment objective will be realized or that the strategy will generate positive or excess return.
Past market experience is no guarantee of future results.
For Institutional Use Only. Not For Further Distribution
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April 2025
It is a cliché of military history that it is easier to start a war than to end one, and the war one starts may not be the war one gets. We will see if the same themes apply to trade wars in coming months, but a trade war analysis is not the only lens by which Liberation Day can be viewed.
March 2025
Global risk markets are responding to US White House policies and have moved pricing due to changes in federal government employment, tariff, and foreign policies. The result is a repricing of rearmament prospects and top line growth in the Eurozone and growth risks in the US.
February 2025
After a busy couple of weeks of fiscal and trade policy executive orders from the new White House administration.
January 2025
Global bond markets are not having a happy new year. US Treasury sentiment turned distinctly bearish in the first two weeks of January, amplified by a blow-out US payroll release. The US economy apparently produced a quarter of a million new jobs in December. US growth exceptionalism persists.
December 2024
Optimism continued to saturate US equities and the dollar this past month. The US economy looks set for sustained growth in 2025: investment spending is strong, small business optimism has spiked higher, and the market’s desire for AI, crypto, deregulation and merger activity are all elevated, in our view.
November 2024
Global markets have had a week to contemplate the return of Donald Trump to the U.S. Presidency and the markets have responded: As of November 15, 2024, US equities went up, US dollar went up, US Treasury yields went up, and US credit spreads went down.