Following a severe sell-off in equities earlier this year, long-duration government bonds have regained their traditional defensive characteristics. In the US, while the Federal Reserve has paused its rate-cutting cycle, expectations of future cuts remain. The 10-year Treasury yield stood at 4.39% as of Jun 17, up even as shorter-dated yields declined — steepening the curve. Investors are balancing concerns of higher inflation with the risk of a downturn, both shaped by evolving tariff policy and persistent US fiscal deficits. This has kept long-term yields elevated and may allow for further steepening.
With macroeconomic uncertainty dominating 2025, fixed income has become a more compelling asset class, offering resilience, diversification and attractive yields across several segments.
Capital Group’s latest mid-year outlook points to trade policy volatility, driven primarily by shifting US tariffs, as a key catalyst behind equity market jitters and an economic slowdown. Amid this backdrop, bond investors are increasingly seeking opportunities in government bonds, securitised credit and high-quality corporate debt.
