Tariff turnaround resets the outlook for fixed income

While tariffs have done meaningful damage to the economic outlook and raised volatility in rates markets, the softening of the US stance has restored confidence in credit returns for 2025.

The latest Labour Market Overview published by the UK’s Office for National Statistics (ONS) on Tuesday morning has raised eyebrows, with some metrics seemingly having deteriorated quite rapidly versus last month.

The European high yield (HY) default rate spiked higher in May with the largest monthly default volume on record (€6bn).

As markets digest and speculate about the implications of the Trump administration’s 1,000+ page One Big Beautiful Bill Act (OBBBA), new details are beginning to emerge.

Partner, Co-Head of Investment Grade, Gordon Shannon hosted a webinar on Tuesday 3 June 2025 where he provides insights into the key macroeconomic themes shaping fixed income markets and how these factors influence the fund’s positioning.

The European Central Bank (ECB) will be alone this week in delivering its latest monetary policy decision, with the next Federal Reserve, Bank of England and Bank of Japan meetings not until the week commencing June 16.

Over the last couple weeks, we have seen an ongoing increase in government bond yields across the major global economies, with a particular focus on Japan as yields on longer dated Japanese government bonds (JGBs) have moved sharply higher.

Monday was a somewhat eventful day for markets with several headlines in the US and Europe. Risk assets did not necessarily reflect the eventfulness of the day, finishing virtually unchanged, while rates had a volatile day that ultimately produced a sizeable rally.

The question for investors now is how much of the macro risk remains, and how well that risk is being reflected in asset valuations.