Fixed income

There is an emerging sense of unease in the markets around the scale and productivity of corporate investments in AI. As fixed income investors, not equity or tech managers, we will not aim to assess the longevity or possible applications of these nascent technologies, and nor should we opine on when or by how much equity markets might go up or down.

Jerome Powell and his Federal Reserve (Fed) colleagues decided to cut the Fed Funds rate by 25bp to 3.75-4% at last week’s policy meeting, marking 150bp of cuts since the cycle began in September 2024.

Amid tariffs, bankruptcies, and uncertainty, credit fundamentals remain strong. Elevated yields and solid corporate balance sheets favour income-focused fixed income strategies over government bonds, even as volatility persists.

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.

France’s chronic government paralysis repeatedly created headlines this month, and fixed income markets are rightly worried about the sustainability of French government borrowing levels. Meanwhile, forecasts of a £50bn blackhole in the UK’s public finances are keeping gilt yields elevated and have made this November’s UK Budget a potential flashpoint.

Earlier this month, we wrote about the high cost of staying in cash in the Euro market. In that note, we argued that a combination of inflation, low front-end rates and steeper curves, favoured a rotation out of cash and cash like instruments into other alternatives that delivered better real returns, including credit. Building on this argument, we wanted to extend this perspective to the US dollar market and highlight a few key points.