Market Pulse: Global Fixed Income Update
December 2025, In the Loop
The T. Rowe Price Fixed Income Division held its Policy Week amid the Federal Reserve’s much anticipated final meeting of 2025 where the views of policymakers on the Federal Open Market Committee (FOMC) have differed recently. With few other market catalysts since our November Policy Week, most outlooks on conviction and valuations remained unchanged.
Analysis and Conviction Updates
- Highlights from our Global Economics team included expectations for improving global growth from the current modest state. Expected improvement continues to be attributed primarily to the U.S. thanks to supportive fiscal spending, loose financial conditions, and ongoing momentum in AI-related investments from corporations. Global inflation continues to moderate with upside risks in the U.S. standing out among major regions thanks to tariff shocks and sticky services inflation. As a result, momentum behind monetary easing from major central banks has slowed substantially. Chief U.S. Economist Blerina Uruci stated that she believes FOMC Chair Jerome Powell’s policy cut delivered at the December 9 meeting will be the last of his tenure. This remains the most differentiated view relative to the market to come out of the economics meeting.
- With little change in the economic backdrop and U.S. Treasury yield momentum now turned upwards, our Global Interest Rate & Currency Strategy (GIRCS) team maintained its out-of-consensus view that intermediate- and long-term Treasury yields are more likely to move higher from here than not. The balance of risks for short-term Treasury yields is more even in the committee’s opinion, supporting a slightly less differentiated view that the Treasury curve is likely to steepen over the coming months if growth improves and inflation remains above target.
- In our Sector Strategy meeting, investment staff discussed the outlook for risk into year-end, which is expected to remain strong as very low supply and ongoing inflows should be supportive. As we move into the new year, expectations for a wave of issuance from industries like utilities are expected to turn spread performance softer. Against this backdrop, credit derivatives remain an attractive way for active managers to quickly adjust exposures to take tactical advantage of weakness that could be short-lived if the fundamental picture remains strong.
Bottom Line: Looking ahead to 2026, we believe taking an active approach in fixed income securities will be essential as global central bank policy could continue to diverge while themes like the AI arms race shape markets in rapid fashion. We believe having dedicated resources in global economics and fundamental analysis teams across countries, sectors, and currencies can help create distinct perspectives that can help inform our portfolio managers and investment staff through uncertainty and changing markets.
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