Government Bonds

As Jerome Powell enters his final months at the helm of the Federal Reserve (Fed), market participants have been busy analysing the past speeches of his nominated replacement, Kevin Warsh, with the aim of forming a view as to how his hand is likely to be played.

With spreads well below long term averages and government bond curves pricing in what central banks are likely to do in the next few quarters, opportunities for capital gains through spread compression or sustained rallies in government bonds appear to be limited.

As we begin the final stretch of 2025, market conditions appear challenging. Inflation remains sticky across a range of economies, preventing major central banks from enacting rapid rate cuts to support GDP growth.

With the Fed’s stance suggesting it is prioritising growth over sticky inflation risks, volatility in longer dated bonds is likely to persist and the case for increasing duration in fixed income is not compelling.