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Q4 2025

Fixed Income Outlook

In bond market investing, small consistent gains can make all the difference. Today’s environment of desynchronized growth and monetary policies offer opportunities for diversification. It’s also a setting where technology and automation refine traditional investment approaches.
Read the full Fixed Income Outlook Read the full Fixed Income Outlook

Key takeaways

1

Winning the important points

We believe achieving better than market performance in fixed income investing often comes from small, repeated gains and winning at key market moments.
2

Navigating tight spreads

Security selection and sector allocation may be the primary means to determine performance differentials, with a focus on finding resilient companies.
3

Connecting the data dots

Investment insights that can provide a true edge may not typically last long, underscoring the need for swift synthesis of new data to help form actionable insights.

Bond market trends

Markets have cheered the softening of tariff announcements that reduced the risk for worst-case scenarios for the growth and inflation outlook. Yet, with ultimate outcomes still unknown, it's crucial to monitor ongoing disruptions and their potential impact on markets and portfolios.

 

In our first quarterly Fixed Income Outlook, our active fixed income investors offer their global views on key themes they see shaping markets: income over duration plays, the evolving utility of long-duration bonds as ballast for portfolios overall, and how a systematic fixed income lens delivers fresh insights. We dig into these topics and more as we explore the opportunities for bond portfolios today.

Gaining a little edge a lot of times may be the secret to being a better bond investor.

Rick Rieder
Chief Investment Officer of Global Fixed Income

The Fed, technology, and the future of employment

Rick Rieder, Chief Investment Officer of Global Fixed Income, believes that setting interest rate policy is becoming more complex, highlighting the need for a nimble and flexible investment strategy going forward. While the U.S. presents compelling opportunities, investors may also consider select European sovereign issues on a foreign-exchange-hedged basis and Asian markets, taking advantage of potential economic divergences and desynchronization with the U.S. economy. These strategies can enhance yield and mitigate risks as global fiscal trajectories diverge.

Data’s evolving role in tracking macro shifts

Tom Parker, Chief Investment Officer, and Jeff Rosenberg, Senior Portfolio Manager, from BlackRock’s Systematic Fixed Income team have for years tracked and analyzed traditional and alternative data seeking to obtain an investment edge. They believe traditional data is valuable thanks to the depth and historic record it can offer, while alternative data, such as online job postings, offers timely insights on U.S. wages and job trends. With advanced AI handling massive data sets, they see the real advantage as connecting—not just collecting—the dots.

Reallocation and regional expertise

Tariff concerns have likely been driving performance across markets, including European fixed income. This, combined with geopolitical uncertainty, has helped intensify investor caution, underscoring the importance of maintaining well-diversified portfolios to navigate a complex environment. Simon Blundell and James Turner, Co-Heads of European Fundamental Fixed Income, discuss how European fixed income is increasingly seen as a compelling diversifier for global portfolios, offering stability, liquidity and strong risk-hedging potential amid shifting capital flows and geopolitical uncertainty.

Yes, and yes — Asian bonds and active management

Asset allocators seeking uncorrelated assets have gotten increasingly creative, adding gold, bitcoin, real estate, infrastructure, and private credit ― “alternatives” whose place in portfolios has grown as the efficacy of traditional hedges has waned3. Asian bonds are underrepresented in this mix. Navin Saigal, Head of Global Fixed Income, Asia Pacific, dives into the underlying cause of U.S.-Asian bond market divergence. In his view, it stems from differences in global policies, with U.S. tariffs fueling domestic inflation and contributing to deflationary pressures in Asia. Asian countries like India and Indonesia currently offer attractive real yields, and their central banks have room to lower rates4.

Top investor questions for the Fixed Income Outlook

  • Yes. Income levels remain historically compelling, and both fundamentals and technical factors continue to support current spread levels. In this environment, fixed income can play its traditional roles of income generation, diversification, and portfolio ballast, while also offering select opportunities for global yield enhancement.

  • Heightened volatility from tariff concerns and geopolitical uncertainty has led to a clear divergence between U.S. and European markets, with global investors seeking greater stability and considering diversifying away from U.S. assets.1 We believe European fixed income offers stability and liquidity, making it an attractive option for investors looking to navigate an increasingly complex environment.

  • Investors could broaden their approach by looking beyond traditional long-end U.S. duration. As long-term rates decouple from Fed policy, where duration is held likely becomes as important as how much. Shorter maturities and global exposures may offer better diversification and hedging. Tools like large language models can also enhance insights—analyzing cross-country fiscal sentiment to inform positioning across economic regimes.

  • International bonds can enhance portfolio diversification by providing potential price appreciation during deflationary shocks in non-U.S. countries, while the U.S. may face inflationary shocks due to tariffs. Global central banks are also likely to cut rates more aggressively than the Fed, creating opportunities in non-U.S. government and investment-grade bonds. We believe a USD-hedged approach to investing in international bonds may provide better risk characteristics.

  • Although trading decisions should vary for each investor, it’s important to keep in mind the role fixed income plays in your portfolio, whether it’s income, diversification or total return. Experienced bond managers can uncover attractive investment opportunities amid turbulent markets.

  • Historically, recessions have been accompanied by lower target interest rates which results in higher bond prices. Longer duration bonds have higher sensitivity to interest rates and, all things equal, have experienced greater price appreciation as interest rates fall.