Active fixed income
Active Fixed Income Perspectives Q4 2025: Caught in the crosswinds
October 30, 2025
We expect to see U.S. growth improve as the tariff-driven inflation shock subsides. Across our portfolios, we are balancing our constructive economic view against full valuations and the risk that the economy slows more than anticipated in the near term.
Key takeaways
Performance
- Bonds have delivered this year, with returns boosted across sectors by higher coupons combined with price appreciation from both a decline in yields and further spread compression.
- Year to date as of September 30, 2025, the broader U.S. bond market as measured by the Bloomberg US Universal Index had produced returns of 6.31%.
- Our outlook anticipates that conditions for strong performance will continue.
The big picture
- The labor market is realigning to a lower trajectory, and the impact from tariffs will build into 2026.
- However, positive growth drivers are on the horizon, which should help the economy over the coming quarters.
- With additional rate cuts on the way, we see an opportunity for investors to lock in durable yields further out on the curve.
Our approach
- Strong investor demand has pushed spreads even tighter in taxable credit, despite near-record September issuance.
- We expect credit to continue to perform well and are leaning into segments that have lagged in recent tightening.
- In municipals, investor flows have returned and there’s considerable value further out on the curve and in coupon and call selection.
Active Fixed Income Perspectives: Q4 2025
Notes:
All investing is subject to risk, including possible loss of principal. Past performance is no guarantee of future results.
Investments in bonds are subject to interest rate, credit, and inflation risk.
Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund’s trading or through your own redemption of shares. For some investors, a portion of the fund’s income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.