Year Month US Fixed Income Insights Report

Key Chapter Title List

1. Macro and Policy Background – Fed Focuses on Tariff Impact, ECB's Growth Concerns Intensify
2. Yields, Yield Curves, and Spreads – G7 Yield Curves Continue to Steepen, Driven by Policy Easing
3. Investment Grade Credit and MBS Analysis – BBB Remains the Strongest Performing Credit Category
4. High Yield Credit Analysis – CCCs Have Recovered Well, Aided by Tariff Delay
5. Sustainable (SI) Sovereign Bond Analysis – Underweight in USD for Green Bonds Remains a Key Theme
6. Performance – Weak USD, Strong EUR and JPY Dominate Returns
7. Appendix – Global Bond Market Returns, Historical Yields, Duration and Market Cap, and FX Returns

Document Introduction

This report is published by FTSE Russell, part of London Stock Exchange Group, and is the Fixed Income Monthly Insight for May 2025. The report's core focuses on two intertwined themes: first, the divergence and path adjustments in monetary policy by major global central banks (especially the Fed, ECB, and BoE) against a backdrop of growth concerns and tariff uncertainty; second, the significant weakening of the US dollar's role as a traditional safe-haven asset in 2025 and its profound reshaping of the global asset return landscape.

The report begins by noting that although US tariffs have been suspended for 90 days, policy uncertainty has made gold the primary beneficiary, while the US dollar has become the primary loser. European bonds (especially short-dated ones) have led performance due to a stronger euro and anticipated policy easing, with the overall yield curve showing a bull steepening trend. Credit markets (both investment grade and high yield) have generally not been severely impacted by tariff turbulence, demonstrating resilience.

At the macroeconomic level, the International Monetary Fund (IMF) has significantly downgraded its 2025 growth forecasts, particularly for the US and its major trading partners, reflecting the direct negative impact of tariffs on business confidence and trade. Meanwhile, inflationary pressures have moderated due to weak energy prices, but Q2 data is expected to begin showing the initial effects of tariffs. A key observation is that the US labor market has not deteriorated significantly, and wage inflation remains a key variable for Fed decision-making.

Financial market behavior shows structural changes. Unlike historical patterns during the Global Financial Crisis and the COVID-19 pandemic, the US dollar did not exhibit its traditional safe-haven attributes during the 2025 tariff disputes, and the 10-year US Treasury yield did not fall sharply. Instead, the euro and yen strengthened significantly. The report's analysis suggests this may reflect signals from US authorities favoring a weaker dollar, while also highlighting that structural factors continue to support the dollar's reserve currency status in the absence of clear alternatives.

Looking at specific asset class performance, German long-term government bonds led returns in USD terms, primarily benefiting from euro appreciation and bond price increases driven by falling inflation. Within investment grade credit, BBB-rated bonds continued to perform strongly, weathering market volatility related to tariffs. In high yield, CCC-rated bonds stood out during the risk rally and benefited from the tariff delay. Sustainable Investment (SI) bond analysis reveals that due to the massive issuance of European green bonds, the green bond index is underweight in USD-denominated bonds relative to the broad index, while being overweight in euro-denominated bonds, constituting a key theme affecting its relative returns.

The report is data-rich, accompanied by numerous charts, covering yield, return, spread, duration, and market cap data for global major sovereign bonds, inflation-linked bonds, and investment-grade and high-yield credit across different maturities. It also provides a comprehensive summary of the performance of major currencies against the US dollar. All analyses are based on FTSE Russell's fixed income index series, offering professional investors a deep, data-driven perspective to assess risks and opportunities in the global fixed income market at the beginning of Q2 2025.