Investment Ideas for Fixed Income Markets

Beyond these considerations, the Fixed Income Division also deliberated on the quickly rising scale of complex IG debt that will be needed to fund the historically large AI infrastructure arms race referenced above that has just begun. Just as shopping mall or golf course developers must finance their projects with borrowed money and manage the associated interest expenses while waiting for the asset to eventually generate cash flows to repay the debt, the current AI buildout will increasingly rely on structured debt to fund its massive infrastructure investments, and these debt offerings may be highly complex given the relationships between the companies involved in the rapidly accelerating AI industry.

While uncertainty abounds with now more and increasingly complex AI debt-deal structures that will combine joint venture project finance, we believe there will be opportunity for asset managers who can analyze and understand the highly complex deal structures that may be present as companies issue debt in the IG corporate market to fund infrastructure spending. To this end, a yield premium has emerged based on the difference in spreads between the technology component of the Bloomberg U.S. Investment Grade Corporate Bond Index and the full Bloomberg U.S. Investment Grade Corporate Index.

Bottom Line—Just as the T. Rowe Price Fixed Income Division avoided the esoteric and complex deal structures that ultimately helped trigger the global financial crisis of 2008, today’s fixed income platform remains predicated on fundamental research, enjoys close collaboration for greater perspective with T. Rowe Price’s dedicated technology equity team, and is prepared to navigate the uncertainty and opportunity that accompany today’s historic AI buildout.

All investments are subject to market risk, including the possible loss of principal. Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall.

Capital risk:  The value of your investment will vary and is not guaranteed. It will be affected by changes in the exchange rate between the base currency of the portfolio and the currency in which you subscribed, if different.
Counterparty risk:  An entity with which the portfolio transacts may not meet its obligations to the portfolio.
Geographic concentration risk:  To the extent that a portfolio invests a large portion of its assets in a particular geographic area, its performance will be more strongly affected by events within that area.
Hedging risk: A portfolio's attempts to reduce or eliminate certain risks through hedging may not work as intended.
Investment portfolio risk:  Investing in portfolios involves certain risks an investor would not face if investing in markets directly.
Conflicts of interest risk:  The investment manager or its designees may at times find their obligations to a portfolio to be in conflict with their obligations to other investment portfolios they manage (although in such cases, all portfolios will be dealt with equitably).
Operational risk:  Operational failures could lead to disruptions of portfolio operations or financial losses.

Actual outcomes may differ materially from any forward-looking statements made. The statements made are as of November 2025, are those of the author, and are subject to change, and T. Rowe Price assumes no duty to and does not undertake to update forward-looking statements. Other T. Rowe Price associates may have different views.

Vigilant Active Management

The “Chinese bamboo tree story” is a well-known parable about a plant that spends years developing a strong underground root system, showing no visible growth above ground, before suddenly shooting up 90 feet in just six weeks. This story powerfully illustrates the importance of patient perseverance. In the wake of the T. Rowe Price Fixed Income Division’s October Policy Week and recent capital market events, the story serves as a reminder that vigilant active management—grounded in a strong foundation—can help address the following two key considerations:

Maintaining credit selection discipline amid credit markets that are not providing much room for error and are beginning to rumble—Public and private credit markets have been wide open during the year-to-date period, which continues a trend of recent years that was only briefly interrupted this past spring. Corporate fundamentals have remained sound in conjunction with resilient U.S. and global economies. Meanwhile, fluidity between private and public credit markets has given companies access to the credit they need not only to sustain themselves, but also to expand organically or through mergers and acquisitions. As a result, investment-grade and high yield credit spreads had revisited historically low levels before most recently moving modestly wider; but spreads remain well below historical averages. Through this cycle of ever tighter credit spreads, the firm’s fixed income security selection process in credit has been not only prudently maintained but enhanced with the intent of ensuring credit exposure that could weather an eventual turn in the credit cycle. As a result, while the Fixed Income Division largely views the various global credit sectors that make up its opportunity set with “neutral” conviction coming out of Policy Week, the ongoing work of focusing on sourcing the best fundamental relative value from these various sectors continues.

It is against the backdrop of dedicated sector teams persistently scouring their markets to seek the best relative value while also not losing sight of fundamentals where the bamboo tree story comes into play. Consider, for example, just as the durable roots of the bamboo tree remain hidden in its early years, the ongoing credit selection process we referenced above also forms a strong—but largely invisible—foundation. This is especially true in robust credit markets, where overall positive conditions can make it difficult to distinguish the impact of careful credit selection, as a rising tide tends to lift all boats. But just as a theoretical bamboo tree can suddenly powerfully appear as if out of nowhere, sound security selection also quickly becomes positively pronounced amid a turning point in the credit cycle.

It is yet to be determined whether the recent credit blowups that auto parts supplier First Brands and subprime auto lender Tricolor (no T. Rowe Price fixed income products have exposure to either credit) experienced represent a “canary in the coal mine” as being indicative of more broad-based trouble in credit overall and potentially a turn in the cycle. Whether it does or doesn’t, certain private credit firms and banks have already been impacted by this news.

Away from the U.S., a heightened central bank policy rate of 15% in Brazil is suddenly acting as kryptonite for several heavily indebted companies in the country, with any refinancing or new bond issuance coming with significantly higher interest rates. Beyond Brazil, there is some room for pause more broadly in emerging market credit markets in recent weeks, in our view. Ultimately, whether the current moment in global credit markets turns for the better or worse from here, still stretched valuations in credit markets also mean that fixed income portfolios with “strong root structures” built on disciplined, thorough security selection—without shortcuts that could have been obscured during the recent bull market—are especially worth considering.

An earnest, yet methodical, approach toward incorporating generative AI into fixed income investment processes—As is the case with most corporations globally, T. Rowe Price and its Fixed Income Division are actively exploring and implementing AI-driven efficiencies into our investment process wherever productivity gains are to be made. While many now pursue such efficiency improvements, we believe few have a truth-based fundamental research platform at the foundation of this now urgent push to incorporate AI broadly into business practices and processes. The reference to “truth” is on purpose as many of us already know that not all content generated by AI is necessarily accurate. Ironically, an example of this is the idea that all bamboo trees spend several years developing underground root systems before suddenly experiencing rapid above-ground growth, which can be the depiction returned when posed to an AI chat application. However, this characterization is inaccurate or at least exaggerated, as bamboo can grow rapidly and consistently from the outset and often will be visible above ground relatively quickly. The widely cited narrative, which finds its way into AI-generated responses, more accurately describes the Chinese bamboo tree parable, but is not botanically precise. In this context, T. Rowe Price is committed to incorporating AI into select investment and business processes but will do so according to our own fundamentally clear standards.

Bottom Line—In an environment that’s seeing increasing policy uncertainty, active management in global fixed income takes on heightened importance. Through a disciplined investment process, anchored by its Policy Week in conjunction with expanding quantitative capabilities and its rigorous and collaborative global bottom-up research effort, T. Rowe Price’s Fixed Income Division is well positioned to actively manage the array of global strategies that compose its investment platform through the uncertain times ahead.

FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Risks: All investments are subject to market risk, including the possible loss of principal. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. Investments in high-yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets.

Conflicts of Interest risk – The investment manager's obligations to a portfolio may potentially conflict with its obligations to other investment portfolios it manages.
Counterparty risk – Counterparty risk may materialise if an entity with which the portfolio does business becomes unwilling or unable to meet its obligations to the portfolio.
Custody risk – In the event that the depositary and/or custodian becomes insolvent or otherwise fails, there may be a risk of loss or delay in return of certain portfolio's assets.
Cybersecurity risk – The portfolio may be subject to operational and information security risks resulting from breaches in cybersecurity of the digital information systems of the portfolio or its third-party service providers.
ESG risk – ESG integration as well as events may result in a material negative impact on the value of an investment and performance of the portfolio.
Investment portfolio risk – Investing in portfolios involves certain risks an investor would not face if investing in markets directly.
Inflation risk – Inflation may erode the value of the portfolio and its investments in real terms.
Market risk – Market risk may subject the portfolio to experience losses caused by unexpected changes in a wide variety of factors.
Market Liquidity risk – In extreme market conditions it may be difficult to sell the portfolio's securities and it may not be possible to redeem at short notice.
Operational risk – Operational risk may cause losses as a result of incidents caused by people, systems, and/or processes.
Sustainability risk – Portfolios that seek to promote environmental and/or social characteristics may not or only partially succeed in doing so.

Additional Disclaimers: Actual outcomes may differ materially from any forward-looking statements made. The statements made are as of 15 October 2025, are those of the author, are subject to change, and T. Rowe Price assumes no duty to and does not undertake to update forward-looking statements. Other T. Rowe Price associates may have different views. The specific securities identified and described are for informational purposes only and do not represent recommendations.
 

“Real” Conviction 

Following the negative asymmetric yield experience of 2022, yield trends for nominal intermediate- to long-maturity U.S. Treasuries have regained symmetry as the market seeks to identify their next durable trend; but overall, nominal yield levels have still been volatile. Consider the dizzying yield journey of the bellwether 10-year U.S. Treasury for the past one year that began the period at 3.74%, tested 4.79% in mid-January, then settled in a range around 4.4% from mid-April to late July before oscillating in a range between 4.0% and 4.2% since then. It is against this challenging backdrop and a bias that U.S. rates, in conjunction with concerns centered on seemingly unsustainable U.S. deficit spending, will eventually be heading materially higher that the T. Rowe Price Fixed Income Division held its September Policy Week. 

Interestingly, through the holistic assessment of Policy Week that follows detailed analysis across the various components of global fixed income markets, currencies and related economies, not much had changed since the Fixed Income division’s Policy Week meetings in the summer. Fundamentals remain sound across investment grade and below investment grade credit sectors and related spreads remain historically tight, supported by a global economy that continues to plod positively forward amid:

• Front loading (ahead of elevated tariffs) activity carrying the Eurozone economy for now that should then gain additional support with expansionary fiscal policy kicking in next year.

• China showing some signs of bolstering its consumption economy as the country’s exaggerated (and tariff free…) industrial production continues to move its overall economic needle forward.

• A slowing U.S. economy transitioning toward a greater manufacturing focus that is now supported by expansionary fiscal policy in the form of the One Big Beautiful Bill (OBBBA) and a Federal Reserve rate cut (with high market expectations for two more 25-basis-point cuts coming before year end).

Beyond strong fundamentals that are also supported by favorable equity earnings trends across the S&P 500, the continuing overlap between public and private markets also means that corporate America is technically well supported from a funding perspective as the domestic IPO market heats up. 

Away from corporate credit, the sharp year-to-date falling trend in the U.S. dollar, while still modestly atrophying, found near term traction in recent weeks as Policy Week unfolded. As a result, conviction levels remain broadly neutral or better across most spread sectors, apart from the mortgage-backed securities sector that is beset with some near-term technical pressure. Interestingly, from a real time perspective, the future fortunes of the U.S. dollar are being revisited for another potential leg down with more Fed rate cuts potentially coming.

Overall, while the surface appears serene across spread sectors, the division’s respective credit and emerging markets debt sector teams remain vigilant regarding security selection to prepare for a a turn in the current “goldilocks” environment for credit. In addition to an emphasis on security selection within spread sectors, our sector teams highlighted the utility of the high yield and investment grade synthetic corporate markets that allow us to actively manage corporate exposures while also having an attractive liquidity profile that allows the team an opportunity to pivot if market conditions change.

In assessing the current tight spreads environment, particularly in long maturity corporate credit, getting the call right on where intermediate to long U.S. rates are headed is a focus as sharply higher yields could represent a “trip wire” for the current credit cycle. While the passing of OBBBA confirmed that the U.S. administration would continue running concerning levels of deficit spending well into the future, U.S. 10-year Treasury yields have rallied nevertheless from a high of 4.6% in late May to 4.13% as this note is being written. As a result, while the Fixed Income Division reevaluated its negative view on U.S. sovereign duration during its September Policy Week, an overall bearish view remains. Near term, this posture has been reinforced as the U.S. 10-year yield, after testing just below the 4% yield range on September 11, has since risen to the higher yield level referenced above.

One other way to evaluate what has become a complex U.S. nominal rate environment is to reduce its noise by instead focusing on real yields, which adjust for inflation. Such a simplified view is provided in the chart on the right. As illustrated, U.S. 10-year real yields (U.S. 10-year nominal yields less U.S. CPI) in the range of 2% arguably represented a gravity point for where U.S. nominal yields ultimately landed heading into and then just beyond the Global Financial Crisis. After that, this theoretical 2% real yield range guide was shattered by an era of quantitative easing and peak globalization. Today’s world is markedly different with deglobalization trends that are being exacerbated with heightened tariff policy that now may have U.S. Treasury rates now seeking a new and higher baseline for real yields. This phenomenon may also help drive U.S. 10-year and longer maturity nominal yields higher going forward. 

Against the backdrop described above, being short U.S. duration, positioning for a steeper 2s/10s U.S. Treasury yield curve, allocating to select inflation linked global sovereign debt, and potentially revisiting a short U.S. dollar posture all warrant consideration. And in terms of keeping it “real” in the current environment, T. Rowe Price Multi-Asset Division’s proactive move years ago to add and now be overweight real assets seems warranted as signals from gold miners suggest that U.S. Treasury real yields may not fully capture the future realities of a changing world.

Bottom Line – In an environment where indeed the world has changed as the U.S. pursues a materially unique go forward path relative to its approach for the past 80 years, active management in global fixed income takes on heightened importance. Through a disciplined investment process, anchored by its Policy Week in conjunction with expanding quantitative capabilities and its ongoing global bottom-up research effort, we firmly believe that the T. Rowe Price Fixed Income is well positioned to actively manage the array of global strategies that compose its investment platform through the uncertain times ahead. 

One Big Beautiful Bill allows the totality of “Trump 2.0” to now crystallize 

The notion that capital markets loathe material uncertainty has been on full display year-to-date. In anticipating tax cuts and deregulation that would come with a second Trump presidency, global investors warmly embraced the notion that U.S. equity market dominance that had existed for well over a decade would continue in perpetuity as 2025 began. But investors learned soon after that the totality of “Trump 2.0” would extend beyond providing additional succor for arguably overstretched U.S. and global equity markets and would also disrupt the Bretton Woods global financial system that has largely been in place since the end of World War II.

Going forward, for example, the U.S. appears to no longer serve as a free de facto global policeman supporting the global establishment. Beyond this realization, a much more impactful announcement came on “Liberation Day” in early April. Draconian tariffs of a scale not seen since the Great Depression were also a primary part of a plan that seemed to lacked coherence. Global capital market participants were quick to deduce, for example, that such a rapid and growth-debilitating change could cause a recession in the world’s largest economy without some type of fiscal policy offset. 

It wasn’t enough for this administration to claim that their use of tariff policy in 2018 did no harm to the U.S. economy in its attempt to rebalance a global trading system that was out of kilter. Those tariffs were limited and specifically measured and, importantly, followed the stimulative Tax Cuts and Jobs Act of 2017. And while a general expectation for more tariffs existed in early 2025, what was introduced on April 2 was arguably way beyond any market expectations. Worse yet, such an announcement came before what was then an uncertain fiscal package in terms of its composition as well as its likelihood of passing Congress. We all now know the rest: Markets were quick to understand and price in that delayed and materially less debilitating tariffs would allow for the vital passage of the One Big Beautiful Bill (OBBB). This has now happened, which has allowed President Trump to reignite tariff risk into the global financial system. In contrast to early April, however, heightened tariff risk is now incorporated into an arguably coherent overall agenda message that Trump delivered to NBC News during a wide-ranging interview on July 10. 

It is against this backdrop that the T. Rowe Price Fixed Income Division held its July Policy Week where the following highlights emerged:

The OBBB is growth positive overall for the U.S., but—This historic and stimulative legislation comes at a time when the U.S. economy has demonstrated surprising resiliency relative to heightened uncertainty. And while questions exist about the state of U.S. labor markets, on its surface, with an unemployment rate of 4.1%, America is fully employed as expansive fiscal policy is introduced. This runs counter to classic Keynesian orthodoxy, which speaks to global regime change and questions around future levels of inflation.

Inflation has been benign, but—Thanks to regional housing market weakness, domestic real estate prices that exploded during the pandemic and ultimately helped drive materially higher levels of Owners’ Equivalent Rent (OER)—which represents approximately 26% of total U.S. CPI—are now receding. This dynamic is helping inflation to remain benign even as the Federal Reserve and many market participants (including the T. Rowe Price Fixed Income Division) remain worried about future levels of inflation.

Questions around future U.S. rate levels—T. Rowe Price’s Head of Fixed Income, Arif Hussain believes that “…the passing of the OBBB has confirmed our skepticism around austerity since the U.S. primary deficit is projected to increase under the new law… The tax cuts will keep the U.S. fiscal deficit elevated for the foreseeable future and put pressure on the long end of the U.S. Treasury curve.” Potentially exacerbating Arif’s view is the qualitative consideration that if the U.S. is indeed no longer the world’s global policeman, then questions exist around future foreign demand for what is expected to be heightened U.S. coupon issuance going forward. Against this backdrop, the 10-year and longer portions of the U.S. Treasury market may be deeply pressured, while there may be attractive opportunities in inflation-linked bonds that have languished year-to-date amid benign inflation trends. 

Importantly, timing matters when considering the look ahead for U.S. rates, as competing forces are influencing them. Anticipation of future Fed rate cuts is supportive of yields. The T. Rowe Price global economics team, for example, views current monetary policy in the U.S. as being too restrictive and sees potential for two 25-basis-point rate cuts coming from the Fed before year-end. Beyond cuts potentially being delivered by Fed chair Jerome Powell before he leaves his post at the end of this year, some market participants are already anticipating a more dovish Fed chair next year, which again supports rates. 

Meanwhile, with the ink barely dry on the OBBB, President Trump is again escalating tariff policy risk, which can still drive higher future levels of inflation and rates. In addition, as referenced above, the unorthodox nature of adding material fiscal policy at a time of U.S. economic resiliency and full employment potentially harkens back to the 1960s, when the U.S. last breached its theoretical efficiency frontier. Back then, it took time for such policy to drive higher inflation and rates, and while this time is indeed different, caution is warranted regarding future U.S. rate levels.

A positive global growth environment—China’s economy is potentially achieving stable momentum as its exports continue to grow despite trade tension while its fiscal policy appears modestly supportive for growth. Europe, in contrast, is slowing near term economically as front loading (ahead of elevated tariffs) economic activity recedes in future months. This near-term economic malaise, meanwhile, gets significant help from an expansive and historic fiscal policy boost related to necessary elevated defense and infrastructure spending in the wake of a radically different foreign policy approach from the Trump administration. 

A domestic and global “Goldilocks” investment environment is supportive of global spread sectors—In an environment where spreads that materially widened in early April to retrace to again benign and historically tight levels, spread sector valuations appear broadly neutral at this time, as absolute yields remain attractive while fundamentals remain sound.

A stable to appreciating U.S. dollar right now gives way to more U.S. dollar weakness—A highly uncertain time for U.S. policy and some periodic questioning of owning U.S. assets has helped weaken the U.S. dollar by almost 10% year to date. Nevertheless, the passing of the OBBB may be a near-term catalyst for the dollar to consolidate and potentially appreciate from a near-term perspective. Medium to longer term, however, U.S. intent to indeed bring domestic manufacturing back for the purpose of expanding exports would be bolstered with a weaker domestic currency that has experienced a prolonged period of strength since the 2008 global financial crisis.

Bottom Line—In an environment where, indeed, the world has changed as the U.S. pursues a materially unique forward path relative to its approach for the past 80 years, active management in global fixed income takes on heightened importance. Through a disciplined investment process, anchored by its Policy Week in conjunction with expanding quantitative capabilities and its ongoing global bottom-up research effort, T. Rowe Price Fixed Income is well qualified to actively manage the array of global strategies that compose its investment platform through the uncertain times ahead.

FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

All investments are subject to market risk, including the possible loss of principal. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments.

Actual outcomes may differ materially from any forward-looking statements made. The statements made are as of July 2025, are those of the author, are subject to change, and T. Rowe Price assumes no duty to and does not undertake to update forward-looking statements. Other T. Rowe Price associates may have different views.  

Retracement and what’s next…

Delayed and recalibrated U.S. tariff policy in conjunction with resilient U.S. economic and corporate fundamentals have allowed risk assets to largely retrace to levels that existed in late February before the worries of a looming Liberation Day began to be fully priced into markets. As seen in Chart 1, the option-adjusted spread for the Bloomberg U.S. High Yield Index has tightened as equity markets have rallied. Helping this retracement in risk asset narrative further in recent weeks have been:

• Constructive (but still not conclusive) trade talks between the U.S. and China.

• Benign U.S. inflation data, which quells concerns for tariff policy serving as a catalyst for driving higher prospective near-term U.S. inflation for now. More on this topic below.

• Recent successful U.S. Treasury auctions, which followed tepid demand for recent long-maturity sovereign debt auctions in Japan as well as in the U.S.
  

Away from capital markets, despite the constructivism referenced above, all is not necessarily well. Consider oil prices, for example, that had been rising in the weeks leading up to Israel’s recent attack on Iran, now look to remain elevated for an indeterminate amount of time from late May levels as this conflict has potential to extend longer than current consensus projects.

Meanwhile, social unrest is unfolding in the U.S. as integral fiscal policy is being hammered out in the form of a “Big Beautiful Bill” (BBB) in Washington, D.C., which looks to only add to concerns around debt sustainability for the world’s largest economy. While tariff concerns have abated somewhat since early April, tariff-driven revenue still remains an important part of the Trump administration’s fiscal agenda as the administration, and its Department of Government Efficiency, has fallen short of identifying large-scale savings in government spending.

It is against this mixed environment of capital market retracement versus other developing material concerns that the T. Rowe Price Fixed Income Division held its June Policy Week with a focus on identifying what’s next for the global economy as well as for global fixed income markets. Highlights from this month’s Policy Week include:

A tepid global economy driven by the following highlights

A possible technical recession in the U.S.: In the first half of 2022, the U.S. economy experienced a technical recession when it posted two straight quarters of negative gross domestic product (GDP) growth, but still avoided a recession as defined by the National Bureau of Economic Research.  The firm’s economics team expects a similar outcome in the U.S. during the first half of this year as a slowing U.S. economy is expected to get fiscal relief but on a lagged basis that carries into next year. The team also believes that that markets are too complacent about the near-term downside risks to growth from U.S. tariff policy.  This perspective highlights the importance of Congress getting the BBB passed before their August recess.

China muddles through: Expected 4.5% GDP growth masks a mixed economic story in China. Export activity, for example, while appearing resilient on its surface, is compositionally changing as China diverts trade from uncertain U.S. trade policy to other destinations. Away from trade, overall economic momentum in China remains soft as weak housing markets continue to dampen overall consumer activity. And while fiscal policy remains reactive, it is stimulative nevertheless, which introduces hope for China’s economy next year.

Eurozone: While lifting the region’s first-half growth profile, front-loaded trade activity ahead of punitive U.S. tariffs will abate and could lead to a weaker growth trajectory in the second half of the year. Beyond 2025, stimulative fiscal policy such as the large-scale defense and infrastructure spending measures introduced by Germany earlier this year serves as an economic tailwind in future years.

A broad global easing cycle now slows down

U.S. tariff policy will likely be inflationary going forward, potentially driving current benign inflation data higher. Even with this view, our global economics team still expects two 25-basis-point rate cuts by the Federal Reserve before year-end as a neutral fed funds rate in a less globalized world is likely to be in the 3.75% range.

Outside of monetary policy, U.S. interest rates have fluctuated across the yield curve. Long-term rates are caught between the opposing forces of weaker growth and the possibility of higher inflation. For now, 10-year U.S. Treasury yields appear range-bound in the 4.25% to 4.50% range. Over the longer term, 10-year U.S. Treasury yields could revisit the 5% range and beyond with the potential confluence of inflationary tariff policy, elevated U.S. Treasury supply later this year, and fiscal stimulus coming from BBB legislation moving through Congress that comes at a time when the U.S., arguably, remains at full employment.

Beyond the U.S., the global monetary policy easing cycle, illustrated on the right, may begin to slow as uncertain U.S. trade policy creates room for pause from certain policymakers. Consider the European Central Bank (ECB), for example, which has raised its bar for further rate cuts by adopting a wait-and-see approach from here. Even so, our economics team still expects two more 25-basis-point rate cuts before year-end from the central bank’s current 2.15% policy rate, which has been reduced from its 4.50% stance that existed this time last year.

Regarding spread sectors, resilient fundamentals and tight spreads have driven a mostly neutral stance across from the Fixed Income Division. Nevertheless, global spread sectors remain attractive on a fundamental and on an absolute yield basis.

Bottom line in terms of what’s next

While global markets have seemingly moved on from tariffs being a primary risk (even though tariff risk remains) to now focusing on prospective expansionary fiscal policy in the U.S. that is coming at a time of full employment, it is interesting to see a continuing year-to-date trend in U.S. dollar weakness that has followed Moody’s downgrade of U.S. Treasuries on May 16.

Against the uncertain environment described above, active management in global fixed income takes on heightened importance. Through a disciplined investment process, anchored by its Policy Week in conjunction with expanding quantitative capabilities and its ongoing global bottom-up research effort, T. Rowe Price’s Fixed Income Division is qualified to actively manage the array of global strategies that compose its investment platform through the uncertain times ahead.