Fixed Income Outlook 1Q25

KEY TAKEAWAYS:

1. The Treasury yield curve began to normalize over the quarter as the Fed continued to cut short term rates while firmer inflation readings led longer term rates higher. We expect the threat of inflation in 2025 will temper the Fed’s ability to substantially cut rates going forward.
2. A positive, upward sloping yield curve signals that the market no longer expects a recession and is a boon to bond holders as additional yield can be found by extending maturities.
3. Credit spreads remain historically tight and we believe markets are too willing to lend without sufficient credit protection.
4. Given the steepening yield curve, narrow credit spreads, and a diminished slate of Fed actions, our measured and thoughtful portfolio construction should benefit our clients.