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Since the Federal Reserve first cut interest rates in September, we have seen the most aggressive rise in US Treasury yields of any cutting cycle over the past 40 years.

Much of the discussion around inflation over the past few months has centred on the potential for US tariffs, a focus that has only intensified following Donald Trump’s inauguration.

Will volatility in government bonds continue? Has fixed income seen “peak ESG”? And what will be the biggest driver of returns?

Spread tightening has left some market participants nervous about fixed income valuations going into 2025, but we think the drivers of recent credit performance are unlikely to weaken materially in the coming months.

In this month's Flash Fixed Income, we look at how bond markets are reacting to Donald Trump's victory in the US election. With Trump's stated policies widely regarded as being inflationary, we expect a bigger divergence in the path for interest rate cuts between the US and Europe that might favour higher quality European credit.

George Curtis (Portfolio Management), from our Multi-Sector Bond team provided a comprehensive understanding of the key aspects of yield curves.