Fixed Income Outlook

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.

Simon Blundell and James Turner, Co-Heads of Global Fixed Income in EMEA, believe that European fixed income continues to offer compelling opportunities for income-focused investors, with yields near 3% ¹. Yet, tight valuations ² leave little room for error, meaning any adverse market developments could trigger outsized reactions. Ultimately, success in this market depends on “winning the important points” — balancing resilience with agility by securing attractive income, leveraging deep research to avoid pitfalls, and positioning portfolios to capture alpha when dislocations arise.

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.

Pat Haskell, Head of the Municipal Bond Group, believes that municipal bonds remain a stable and resilient investment, bolstered by reduced policy risks, attractive yields, and strong credit quality. Despite modest increases in defaults and rating downgrades, the asset class continues to outperform taxable counterparts, with a very low default rate and a high concentration of investment-grade ratings⁵. Supportive fundamentals, balanced supply and demand, and adaptability amid changing economic conditions make munis a compelling option for investors heading into year-end 2025.

In today’s fixed income environment, multi-asset portfolio builders face a unique challenge. Rate cuts have been telegraphed, but Michael Gates, Head of Model Portfolio Solutions, believes curve positioning is limited, making it difficult to generate meaningful alpha in a capital-efficient manner. Rather than place a sizable curve bet, he prefers to hold slightly longer duration than our benchmark and deploy rate duration as a hedge against equity risk.

With spreads historically tight⁶, opportunities to capture economic upside are hard to find outside of equities. Within more fixed income-heavy portfolios, one segment he finds compelling is convertible bonds. These securities combine the defensive qualities of bonds—income and a level of downside protection—with the option to participate in equity upside through conversion features. The team has coined this “upside with airbags.” Importantly, the issuer base in the convertibles market differs significantly from the traditional investment-grade and high-yield universes, leaning more toward technology, growth-oriented companies, and even bitcoin treasury firms. This makes convertibles a distinctive way to gain exposure to transformative economic themes, such as the AI revolution, while still remaining anchored in fixed income.

This reinforces the importance of a whole-portfolio approach. Diversification remains central when looking across sectors, geographies, and even asset classes adjacent to fixed income, such as precious metals and other alternatives, which may complement traditional bond exposures. By broadening the fixed income toolkit in this way, investors may be able to balance income generation, capital preservation, and participation in economic growth—even as the traditional levers of curve positioning and spread compression appear more limited.