Convictions

Tipping point for fixed income

Explore key dynamics in the global and US fixed income universe

fixed income h2_2025

Key investment implications:

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  • Yields in developed markets have risen, due to elevated public debt and increased sovereign bond issuance. While disinflationary pressures remain, their effects appear to be moderating. Overall, the rate environment remains broadly supportive of growth.
     
  • In the EM space, China’s bond yields are at historic lows, primarily due to persistent domestic deflationary pressures and slowing growth momentum.
     
  • In the US, rising tariffs, and a widening fiscal deficit are compounding concerns around growth. Treasury issuance is expected to remain high, but foreign demand may remain muted. This should lead US yield curves to shift, with yields declining below the 10Y area and increasing beyond the 15Y maturities. 
     
  • In Europe and the UK, moderating inflation and slowing economic momentum are likely to keep rates anchored. The ECB has been easing its policy for over a year, creating support for short-dated bonds and contributing to the steepening of the yield curve. Investors are increasingly seeking diversification* across markets, with a tilt toward European and emerging market debt.
     
  • In Japan, expectations that the government would pursue fiscal reflation pushed 10-year JGB yields above 1.6% for the first time this year. This development, in turn, raised concerns that Japanese investors might  reduce their holdings in foreign bonds.

  • Investment grade corporate bonds continue to offer stability in a volatile macro environment. We maintain a preference for high-quality European credit, supported by strong fundamentals and subdued issuance. As macro conditions evolve, investors are becoming more selective, focusing on segments with better insulation from policy shifts.
     
  • Credit fundamentals may be entering a more challenging phase. Higher tariffs and downside risks to growth could weigh on issuer balance sheets, even as central bank support persists in the background.
     
  • The banking sector offers resilience, particularly in Europe where strong balance sheets and reduced exposure to tariffs are a plus. Subordinated bank paper is highlighted as one of the more attractive segments, benefiting from a supportive supply-demand outlook and healthy fundamentals.

  • The US dollar continues to face structural headwinds, including widening fiscal imbalances, debt ceiling brinkmanship, and shifting global capital flows. The cost of new debt is becoming harder to justify, with interest rates now reflecting rising fiscal risks rather than sound economic fundamentals. As a result, hedging activity will likely intensify.
     
  • Fed rate cuts and the potential for international capital repatriation will likely exert further downward pressure on the US dollar in the medium term. The environment is increasingly favourable for non-USD assets, particularly in select emerging currencies. At the same time, we have taken a cautious stance on the EUR, given its recent appreciation, and the GBP. 
     
  • Scandinavian currencies and the AUD offer better cyclical exposure amid improving global risk appetite and attractive carry profiles. Their relative value has improved as markets stabilise.
     
  • Emerging market currencies are poised to benefit from robust domestic demand, fiscal discipline, and supportive commodity cycles. India and Indonesia remain standout performers. We expect the CNY to remain strong, as policymakers are unlikely to actively devalue the currency due to the potential impact on trade negotiations. Meanwhile, oil-linked currencies such as the MXN and COP could see tailwinds from higher energy prices in the short term.
US Net International Investment Position and FX Spot Performance
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Vincent Mortier

Vincent Mortier

Group CIO

Government bond markets are being rattled by the threat of higher debt and rising inflation fears, keeping volatility high. Investors are likely to demand greater compensation for long-dated bonds, making yields appealing. The name of the game will be diversifying away from the US and into European and emerging market bonds.

Vincent Mortier, Group CIO

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*Diversification does not guarantee a profit or protect against a loss.

All opinions and estimates are subject to change without notice. 

Source: Amundi Investment Institute, Mid-Year Outlook - Ride the policy noise and shifts, June 2025.

Marketing material for professional investors only

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of September 2025. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: September 2025

Doc ID: 4744936