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Brew Markets

Bonds

Lucy Brewster

brewmarkets.com

Bonds may not be as flashy as tech stocks or crypto, but they’re vital for long-term investors building well-balanced portfolios.

That’s why Brew Markets spoke with Justin Danfield, senior fixed income strategist at Invesco, to understand what’s driving yields and how investors can play the moment.

The following conversation has been edited for length and clarity.

It’s been a crazy first half of the year in terms of the trade war and geopolitical instability. Were you surprised at all by the way yields have moved in different corners of the bond market?

That [Liberation Day] shock in April obviously impacted investors, pushing up the longer end of the yield curve, and you saw credit spreads widen. I wasn’t surprised, because there’s a lot of uncertainty, and investors reacted as such.

For example, high-yield bonds went to 450 basis points above Treasury yields, but now they’re back down to under 300 basis points. As we’ve gotten more clarity, it’s become clear the market has digested a lot of this uncertainty. Investors have gotten back to being more risk-on, especially in credit.

A big concern for bond investors is government debt, and how the “Big Beautiful Bill” would expand the deficit if passed. Do you see that as a long-term threat to the bond market?

The additional tax cuts to fund it could put upward pressure on the curve, which is obviously going to be funded by more Treasury issuances. Any new suggestion we need to increase Treasury issuance may drive yields higher on the longer end. And we saw Moody’s downgrade the US credit rating.

What’s interesting is that the 10-year has fallen relatively since the start of the year, but the 30-year is relatively unchanged. That’s why investors are staying high in quality, and looking to active fund managers to take advantage of opportunities in the intermediate portion of the curve, or even the short end of the curve.

What are some specific strategies you recommend for investors to set them up for success over the next year?

It makes sense to be up in quality currently. IG corporate bonds have strong technicals and are likely to benefit further from US FED easing expected later in the year. We expect a weaker dollar, thus non US dollar IG credit from developed countries, such as the paper you would get access to in PICB, look attractive. Also, high quality securitized credit, such as Agency MBS, have lagged the market recovery since April and remain attractive, in our view.—

The future of fixed income is bright

Mapping the future of the bond market

They’re not your flashy, fun friend who invites you to crazy parties, but they’ll be there for you when you need them. Yes, we’re talking about bonds.

Bonds started 2025 on a strong note, but when Trump unveiled his fateful Liberation Day posterboard, volatility shook the entire market, including the usually quiet world of fixed income.

But while some expected Treasury prices to rise as investors fled stocks, the opposite happened. Yields spiked as prices fell, giving investors 

 from the turmoil. The 10-year Treasury yield rose from 4.2% to 4.5% in the four days after April 4, its biggest jump since the financial crisis (keep in mind that bond yields rise when bond prices dip, and vice versa).

Since then, yields have fallen as bond traders accept the new tariff reality and see that the economy has managed to defy recession fears. Year to date, bonds have provided returns of about 4%, not far behind the S&P 500’s 5.8% gain. That may come as a surprise to many given that, over the past decade, bonds have 

, while the S&P 500 has gained 13% annually.

Your portfolio + fixed income = a bond like no other

So, where are the best opportunities in the bond market?

“The disinflationary cycle is drawing to a close, and markets should be able to look through the inflationary impulse driven by likely tariffs,” wrote Global Head of Fixed Income at Janus Henderson Jim Cielinski. “Overall yields on high quality bonds appear attractive as central banks continue easing. Relative valuations in credit sectors, however, are full. Despite muted default risk, selectivity is essential.”

Tax-free municipal bonds could be especially attractive right now, according to Barron’s, given that they fund a lot of infrastructure (cough, cough, 

). Other corners of the bond market that look particularly bright are dividend stocks, mortgage-backed securities, and collateralized loan obligations.—

Bond market 2025 recap

Fixed income has had a wild year. 

Catching up with the bond market

Jamie Dimon took a break from his favorite pastime—lecturing us all about how remote work is a 

 and stain on humanity—to rant about something else for once: the bond market.

“You are going to see a crack in the bond market,” the 

 during an interview at the Reagan National Economic Forum last week. “It’s going to happen.”

Dimon isn’t the only to point out that the usually staid, solid bond market is the latest corner of the financial world to get 

 of both the ongoing trade war and President Trump’s deficit-widening tax bill.

A steep selloff of 10-year Treasurys pushed yields higher last week as investors fretted that the Republican fiscal package would increase the US deficit by $2.7 trillion over the next decade. Moody’s added fuel to the fire after it revoked the triple-A credit rating on US debt due to the risk to the national deficit. And it didn’t help that an auction of 20-year Treasury bonds was met with weak demand.

But US treasury bonds aren’t the only problem child in the fixed-income world right now. Yields on Japanese 40-year government bonds hit 

 last Thursday due to fears about an ongoing global economic slowdown.

Wait, how does what’s going on in Japan affect the US bond market? Turns out that the threat of skyrocketing yields in Japan could trigger a massive exit of Japanese capital from US markets, 

The eyes of Wall Street titans are focused squarely on upcoming Treasury 

, which illustrate how much demand there is for US debt.

One thing there’s very little demand for across the market right now: long-term bonds. 

“Our strongest conviction has been staying underweight long-term US Treasuries,” BlackRock Investment Institute 

. Analysts there are in good company: A swath of Wall Street is 

, while none other than Warren Buffett has been bulking up on 

 “While there is a risk that deficit fears lead to progressively higher yields in the weeks ahead, we believe that the Fed and/or Trump administration would likely make adjustments in the event of much higher yields,” wrote UBS CIO Solita Marcelli in a recent note. “In our view, this means high grade and investment grade bonds represent good value at current levels for investors seeking portfolio income.”

The bond market is cracking: How to invest

Jamie Dimon warned of the growing US deficit taking a toll on the bond market.

Bond market madness

We’ve all heard President Trump tout tariffs as a tactic to bring back domestic manufacturing, exact revenge on trading partners with deficits that hurt the US, and as a point of leverage during negotiations.

But there’s another explanation for why Trump is so set on rolling out these tariffs, to the dismay of economists everywhere: He wants to bring down treasury yields. Yes, those boring old things.

, for a number of reasons. Lower yields would cut the cost of refinancing the government’s massive pile of debt. It would also lower mortgage rates, giving Americans long locked out of the housing market a better chance to buy a home. More broadly, lowering the yield on the 10-year Treasury note is a back-door way to make borrowing cheaper for the government, businesses, and regular people.

The most obvious way to bring down the cost of borrowing is to lower interest rates. But the Fed has made it clear that the central bank is not capitulating to Trump’s demands, leaving the administration to find other methods to cut bond yields. These include 

 and cutting gas prices, cutting government spending by firing 

 of the tariff-induced panic that many have noticed: With investors fleeing the stock market and pouring money into bonds, yields sank. At the end of last week, 10-year yields fell to 3.9%, down from 4.2% on Wednesday, the day tariffs were announced.

But as the administration has discovered, keeping interest rates low is easier said than done.

 that the president is intentionally causing an economic slowdown, Trump himself 

 on Truth Social Friday that said explicitly, “Trump is crashing the stock market,” and specified “he’s doing it on purpose.”

Trump said something similar this weekend, 

 that, “Sometimes you have to take medicine to fix something.”

And how is this economic realignment to lower borrowing costs going so far? The 10-year Treasury yield 

So much for that medicinal intervention.—

President Trump with his chart of tariffs

Why is Trump doing this? Bond yields.

Lower bond yields should spur on economic growth, and Trump is using tariffs to make it happen.

Why is Trump doing this?

Amid the headlines that Zendaya and Tom Holland are engaged, you may have missed the 

 exciting news of all today: The yield on 30-Year US Treasuries 

Look, we know how it goes—when we say fixed income, you immediately keep scrolling to see how many more referrals you need for a free tote bag. But while bonds might not be the most glamorous asset class, yields pack a punch these days.

The 30-year Treasury rate jumped to 4.85% this morning, its highest point since November 2023. At the same time, the 10-year yield leaped 50-basis points to reach 4.64%, its highest since December. Why?

Part of the equation is simple supply and demand. Investors are anticipating a major government debt issuance this week, including $119 billion of Treasury bonds. With more US debt being issued, bond prices get pushed lower, which results in rising yields.

More broadly, fear that sticky inflation will mean fewer rate cuts in 2025 has also put pressure on the bond market and kept yields high since the election. Worries that Donald Trump’s massive tariff plan will increase domestic inflation have only exacerbated fears of fewer rate cuts, as has the president-elect’s proposals to eliminate the debt ceiling.

. But if you’re looking for some fixed income, today’s yields look mighty juicy.

 (AGG). The 30-day yield on AGG hit 4.56% as of Jan. 3, far higher than the 

 of 3.74%, meaning that your monthly dividend is higher if you own bonds or bond ETFs.

“In fixed income, we continue to believe that high grade and investment grade bonds, diversified fixed income, and equity income strategies are valuable in a portfolio context,” explained UBS’s Solita Marcelli in a note today. “Overall, while positioning for lower rates may no longer be as urgent, putting cash to work and seeking durable income should remain a strategic priority for investors.”—

Bond yields keep rising

How can investors capitalize on higher bond yields?

Bond yields are going crazy

This newsletter is supposed to be fun to read, which means we only write about fixed income when we 

But some pretty strange stuff is going on in bond-land (on top of the confusing stuff that’s always happening there).

. After leaping 12 basis points on Monday, it jumped another 2 basis points yesterday—sending the 10-year Treasury yield above 4.206%, its highest level in over three months.

As a reminder, when bond prices fall, yields rise—which means as yields hit new recent highs, a big selloff is happening in the bond market.

Any Econ 101 professor would tell you that interest rate cuts should’ve hurt Treasury yields. But even though the Fed gave rates a 50 basis point haircut last month, yields have actually jumped since then.

Part of this is due to strong economic data, which has convinced bond investors that the Fed will cut rates more slowly, and at a more incremental pace, than they originally thought.

In addition, traders are also looking at new polls and prediction market odds that suggest Donald Trump could win the presidency, along with the GOP gaining a majority in Congress. Conventional wisdom says that with one party in charge of the government, spending will be higher, and the budget deficit would be larger. A bigger budget deficit 

 of bonds, which in turn results in Treasury prices dropping.

Don’t forget the effects of a stronger US dollar. “The increasing likelihood of former US President Donald Trump securing a second term has also added to the USD rally, as investors price for proposed tariff extensions under a new Trump administration, which are expected to add inflation pressures that keep US rates elevated,” explained UBS CIO Americas Solita Marcelli.

On the other hand, junk—or corporate—bonds are 

. That’s because junk bonds tend to behave more like stocks, and rise when the economy is doing well.

To those of you who’ve read this far without skipping ahead to Movers & Groovers, congratulations! You’re now our favorite readers.—

What's happening with bond yields?

Treasury yields are rising, but interest rate cuts should've hurt them. What gives?

Yielding more questions than answers

, and seesawing tech stocks are all well and good, but there’s nothing like a half-digit Treasury yield rebound on a Monday morning to make you feel alive again.

If you’re somehow not as enthusiastic about fixed income as we are, here’s what’s going down:

The 10-year Treasury yield, which is a benchmark for mortgages and car loans, 

 on the heels of a better-than-expected labor market report.

More specifically, yields reached 4.018%, up from 3.58% last month, their highest point since early August.

As a reminder, yields move inversely from bond prices. So when bond prices drop, yields increase.

The September jobs report on Friday showed that the labor market is actually in much better shape than economists feared. Because all roads lead back to the Fed, bond prices sank in anticipation that the central bank will probably only implement one more quarter-point rate cut this year in light of stronger employment numbers.

“No doubt about it, the jobs report is strong and lowers expectations for a .50 basis point cut in November,” explained President of Bolvin Wealth Management Group Gina Bolvin in a note Friday.

While the minutiae of the yield curve might sound esoteric, it's an important gauge of how people are feeling about the economy. While 

 Federal Reserve Chair Jerome Powell’s 50 basis point haircut like he was personally Venmoing every investor himself, now some analysts are worried that 

perhaps the jumbo-sized cut was too large

While a stronger labor market is the main culprit for investors sending bond prices lower, geopolitical 

, which may also be driving investors to sell bonds.

 the Fed’s best-laid rate cut path plans usually go awry.—