--- title: Bond Markets Rebound as Fed Holds Steady and Trade Tensions Ease description: Global fixed income enjoyed a relief rally this week as cooling inflation data and a temporary reprieve on tariffs bolstered sentiment, while major central banks reaffirmed a patient, data-driven policy stance. image: https://blog.syzgroup.com/hubfs/20250602_pic.jpg --- [![Syz Private banking](https://blog.syzgroup.com/hs-fs/hubfs/Logo.png?width=140&name=Logo.png "Syz Private banking")](https://www.syzgroup.com/fr) ## **Thinking** out loud [Subscribe](https://25733253.hs-sites-eu1.com/newsletter-signup?hsLang=en) [![Contact Us](https://hubspot-no-cache-eu1-prod.s3.amazonaws.com/cta/default/25733253/3d762f49-4e71-4f99-97b1-bf6781ef3da2.png)](https://hubspot-cta-redirect-eu1-prod.s3.amazonaws.com/cta/redirect/25733253/3d762f49-4e71-4f99-97b1-bf6781ef3da2) - [OUR SERVICES](https://www.syzgroup.com/en/private-banking) - [ABOUT SYZ](https://www.syzgroup.com/en/about/welcome-to-syz) - [CAREERS](https://www.syzgroup.com/en/careers) - [PRESS](https://www.syzgroup.com/en/news) - [Blog Homepage](https://blog.syzgroup.com) - [Slow Food for Thought](https://blog.syzgroup.com/slow-food-for-thought) - [Focus](https://blog.syzgroup.com/slow-food-for-thoughts/tag/focus) - [Asset allocations Insights](https://blog.syzgroup.com/slow-food-for-thoughts/tag/asset-allocation-insights) - [Market Outlook](https://blog.syzgroup.com/slow-food-for-thoughts/tag/market-outlook) - [Swiss Perspectives](https://blog.syzgroup.com/slow-food-for-thoughts/tag/swiss-perspectives) - [Syz the moment](https://blog.syzgroup.com/syz-the-moment) - [Crypto corner](https://blog.syzgroup.com/crypto-corner) - [Syz AI Insights](https://blog.syzgroup.com/syz-ai-insights) - [Fast Food for Thought](https://blog.syzgroup.com/fast-food-for-thought) - [The week in seven charts](https://blog.syzgroup.com/fast-food-for-thoughts/tag/the-week-in-seven-charts) - [Flash](https://blog.syzgroup.com/fast-food-for-thoughts/tag/flash) - [Fixed Income Weekly](https://blog.syzgroup.com/fast-food-for-thought/tag/weekly-fixed-income) - [Equity Weekly](https://blog.syzgroup.com/fast-food-for-thought/tag/weekly-equities) - [Global markets outlook](https://blog.syzgroup.com/fast-food-for-thoughts/tag/global-markets-outlook) - [CONTACT](https://www.syzgroup.com/en/contact-us/form) - [ENGLISH](https://www.syzgroup.com/) - [FRANÇAIS](https://www.syzgroup.com/fr) - [Slow Food for Thought](https://blog.syzgroup.com/slow-food-for-thought) - [Focus](https://blog.syzgroup.com/slow-food-for-thoughts/tag/focus) - [Asset allocations Insights](https://blog.syzgroup.com/slow-food-for-thoughts/tag/asset-allocation-insights) - [Market Outlook](https://blog.syzgroup.com/slow-food-for-thoughts/tag/market-outlook) - [Swiss Perspectives](https://blog.syzgroup.com/slow-food-for-thoughts/tag/swiss-perspectives) - [Fast Food for Thought](https://blog.syzgroup.com/fast-food-for-thought) - [Flash](https://blog.syzgroup.com/fast-food-for-thoughts/tag/flash) - [Weekly Fixed Income](https://blog.syzgroup.com/fast-food-for-thought/tag/weekly-fixed-income) - [The week in seven charts](https://blog.syzgroup.com/slow-food-for-thoughts/tag/the-week-in-seven-charts) - [Global markets outlook](https://blog.syzgroup.com/fast-food-for-thoughts/tag/global-markets-outlook) - [Weekly Equities](https://blog.syzgroup.com/fast-food-for-thought/tag/weekly-equities) - [Syz the moment](https://blog.syzgroup.com/syz-the-moment) - [Crypto corner](https://blog.syzgroup.com/crypto-corner) - [Syz AI Insights](https://blog.syzgroup.com/syz-ai-insights) - [Our Services](https://www.syzgroup.com/en/private-banking) - [About Syz](https://www.syzgroup.com/en/about/welcome-to-syz) - [Careers](https://www.syzgroup.com/en/careers) - [Press](https://www.syzgroup.com/en/news) - [Contact](https://www.syzgroup.com/en/contact-us/form) - [English](https://www.syzgroup.com/) - [Français](https://www.syzgroup.com/fr) ## **Sign-up** for our newsletter This website uses cookies to enhance user navigation and to collect statistical data. 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If you made a mistake, please change here USA Country Switzerland Canada: Other than Ontario, Quebec, Alberta Canada: Ontario, Quebec or Alberta USA Other country Language Language English French German Italian I confirm Legal information This marketing document has been issued by Bank Syz Ltd. It is not intended for distribution to, publication, provision or use by individuals or legal entities that are citizens of or reside in a state, country or jurisdiction in which applicable laws and regulations prohibit its distribution, publication, provision or use. It is not directed to any person or entity to whom it would be illegal to send such marketing material. 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[![Gaël Fichan](https://blog.syzgroup.com/hubfs/gael.jpg)](https://blog.syzgroup.com/fast-food-for-thought/author/gaël-fichan) [**Gaël Fichan**](https://blog.syzgroup.com/fast-food-for-thought/author/gaël-fichan) Head Fixed Income & Senior Portfolio Manager **Monday, 06/02/2025** | - ![Pdf](https://blog.syzgroup.com/hubfs/pdf%20(1).png) - - - - ## **What happened last week?** **Central banks** Central bankers reinforced a cautious, data-dependent stance this week, emphasizing patience in the face of mixed economic signals. Several U.S. Federal Reserve officials made it clear they see no need for immediate policy moves: Mary Daly (San Francisco Fed) and Lorie Logan (Dallas Fed) both indicated there is no urgency to adjust rates, given that inflation is cooling but not yet at target. Fed Governor Christopher Waller added that he would support cutting rates in 2025—but only if inflation continues on a convincing downward path toward the Fed’s 2% goal. In an unusual high-profile meeting, Fed Chair Jerome Powell met with President Trump at the White House and firmly underscored the Federal Reserve’s independence. Powell stressed that monetary policy decisions will be based solely on incoming data and objective analysis, free from political influence—an important signal given past presidential pressure on the Fed. Across the Atlantic, the European Central Bank is widely expected to cut its key rate by 25 basis points at its June meeting, although officials caution that there is limited scope for further easing beyond that initial cut. The Swiss National Bank likewise struck a flexible tone regarding its post-June policy path, indicating it will keep options open depending on economic conditions. Notably, market pricing now reflects roughly 55 bps of Fed rate reductions over 2025, showing that investors anticipate some easing next year even as the Fed preaches patience. All told, major central banks remain in “wait-and-see” mode—holding steady for now and reminding markets that any future moves will depend entirely on the evolving economic outlook. **Credit** Trade policy uncertainty lingered, but it did little to deter the resurgence of demand in credit markets. Despite mixed U.S. court rulings on tariffs that kept investors guessing, both investment grade and high yield corporate bonds saw strong interest and spread tightening this week. Inflows returned to corporate bond funds on both sides of the Atlantic, marking a notable turnaround from the outflows seen during recent volatility. Credit spreads compressed across regions and ratings: in the U.S., investment grade spreads narrowed by about 2 basis points and high yield spreads by roughly 9 bps. European credit saw even more pronounced gains, with Euro IG spreads tightening 3 bps and Euro high yield rallying as spreads fell around 15 bps. These spread moves translated into solid price performance: the U.S. IG bond ETF rose approximately +1.1% over the week (now +2.0% year-to-date), and the main U.S. high yield ETF gained +0.8% (+2.8% YTD). European credit indices likewise advanced, with the Euro IG ETF up +0.5% (+1.5% YTD) and Euro HY ETF up +0.9% (+2.4% YTD). Notably, even riskier sub-sectors participated in the rally: Euro-denominated hybrid corporate bonds added +0.7% on the week (+1.8% YTD), and Additional Tier-1 bank capital securities (AT1s) jumped +1.0% (+2.6% YTD). The broad tightening in credit spreads reflects improved risk sentiment and investors’ ongoing hunger for yield. However, with tariff and trade negotiations still unresolved, markets remain alert to potential setbacks even as they capitalize on the carry and spread compression for now. **Rates** Global bond markets staged a broad relief rally as investors reacted to better inflation news and a temporary pause in trade tensions. Cooling price data eased fears of further central bank tightening, and a U.S. court ruling that briefly blocked President Trump’s new tariffs helped improve sentiment. In the U.S., Treasury yields fell across the curve, led by a sharp drop in long-term rates. The week’s Treasury auctions illustrated this shift in tone: a 30-year bond auction early in the week met with lackluster demand, but by mid-week a 7-year note auction saw strong bidding as investors’ appetite for duration returned. Inflows into long-duration bond funds also picked up, reversing weeks of outflows. The iShares 20+ Year Treasury Bond ETF jumped +2.1% on the week—its first gain after four consecutive weekly declines—as investors poured back into the long end. Other maturity segments also delivered solid positive returns: 10–20 year Treasuries returned +1.65%, 7–10 year +0.85%, 3–7 year +0.54%, and even short 1–3 year Treasuries were up +0.19%. This bullish steepening of the yield curve reflects growing market conviction that interest rates have peaked. European rates followed suit, with core yields drifting lower and bonds in peripheral countries outperforming. Investors’ risk appetite in Europe was buoyed by tightening spreads between peripheral sovereigns and German Bunds, as well as expectations of an upcoming ECB rate cut. Overall, after a challenging month for bonds, this week’s rally in rates underscored how quickly sentiment can turn when inflation fears ebb and policy risks recede. **Emerging market** Emerging market debt posted divergent results between local-currency and hard-currency segments. Local currency bonds rallied strongly this week, bolstered by a pickup in EM FX values against the dollar. The VanEck J.P. Morgan EM Local Currency Bond ETF climbed +1.44%, reflecting both high yields and currency gains in many emerging economies. By contrast, U.S. dollar-denominated EM bonds edged lower: benchmark EM sovereign bond indices lost about -0.57%, and EM corporate dollar bonds were roughly flat (-0.09%). Regionally, Asia remained a weak spot. Asian high-yield bonds (primarily USD-denominated) fell about -0.45%, weighed down by renewed concerns in China’s property sector. News of stress among Chinese developers once again dampened investor appetite for Asia credit, overshadowing the global tailwinds. On the other hand, Latin American markets continued to shine. High carry and an improving inflation backdrop in LatAm countries provided support to both local bonds and currencies, as some central banks in the region are already eyeing rate cuts. EMEA (Europe, Middle East, Africa) performance was mixed amid country-specific political risks – for example, elections and policy uncertainty in certain nations kept gains in check. The big picture for EM: local-currency bonds are outperforming thanks to favorable currency trends and higher yields, while hard-currency EM debt is seeing more muted performance due to idiosyncratic risks and its sensitivity to global credit conditions. This divergence underscores the importance of selectivity within EM fixed income, as investors gravitate toward pockets of strength and carry even as they remain wary of lingering risks. --- ## **Our view on fixed income** ##### **Rates** > ##### **NEUTRAL** We are neutral on government bonds with maturities of less than 10 years. This stance is supported by elevated real yields, an anticipated peak in central bank tightening, a shift toward disinflation, attractive relative value compared to equities, and improving correlations. Conversely, we hold a negative view on bonds with maturities exceeding 10 years. A flat yield curve and low term premiums reduce their attractiveness, particularly in the context of ongoing interest rate volatility and potential fiscal pressures.   ##### **Investment Grade** > ##### **NEUTRAL** We are neutral on Investment Grade corporate bonds. The sharp tightening in credit spreads, reaching lowest level since 2021, has considerably reduced the margin for safety in credit. Corporate Spreads now represent less than 20% in the total yield of an investment grade bond. This “price to perfection” encourages us to be more vigilant in this segment while the credit market's overall health is supported by robust demand and strategic maturity management ##### **High Yield** > ##### **NEUTRAL** We are neutral on high-yield (HY) bonds, favoring short-dated HY while negative on intermediate and long maturities due to unattractive valuations. U.S. HY spreads have tightened, signaling low default expectations and economic stability. While short-term HY bonds offer selective opportunities, overall valuations appear stretched, particularly if volatility increases. We see more value in subordinated debt than HY bonds. ##### **Emerging Markets** > ##### NEUTRAL We have upgraded Emerging Market debt to neutral, driven by attractive absolute yields and solid fundamentals. The primary market remains healthy, and we favor short-dated EM bonds with yields above 6.5%. However, risks persist: valuations are stretched, Trump’s potential tariffs could pressure EM economies, and idiosyncratic risks remain, notably in Brazil and India. Given this backdrop, we stay selective, favoring short-duration opportunities while cautious on broader EM debt. --- ## **The Chart of the week** **Signs of Relief at the Long End—But Is It Durable?**   ![20250602\_cow](https://blog.syzgroup.com/hs-fs/hubfs/20250602_cow.png?width=560&height=352&name=20250602_cow.png)Source: Bloomberg After a string of heavy losses, long-duration U.S. Treasuries finally found support last week. The iShares 20+ Year Treasury Bond ETF rebounded by +2.1%, ending a four-week streak of declines. This bounce coincided with a softening in inflation expectations and a temporary de-escalation in trade tensions, helping ease some of the upward pressure on yields. The move was particularly notable given how investors had largely abandoned duration exposure in recent weeks, especially with 30-year yields hovering near 5%. Encouragingly, the recovery came alongside a solid auction of 7-year notes and rising inflows into long-end ETFs—early signs that some investors may be reconsidering long bonds as attractive at these levels. Still, it’s too early to call a turning point. Real yields remain elevated, term premia are still rebuilding, and the broader macro backdrop—ranging from fiscal uncertainty to global supply-side risks—remains fragile. For now, the rally feels more like tactical positioning than a structural shift. The key question is: was this a temporary pause in long-end pressure—or the beginning of a more sustained reappraisal of duration risk? #### Disclaimer This marketing document has been issued by Bank Syz Ltd. It is not intended for distribution to, publication, provision or use by individuals or legal entities that are citizens of or reside in a state, country or jurisdiction in which applicable laws and regulations prohibit its distribution, publication, provision or use. It is not directed to any person or entity to whom it would be illegal to send such marketing material. This document is intended for informational purposes only and should not be construed as an offer, solicitation or recommendation for the subscription, purchase, sale or safekeeping of any security or financial instrument or for the engagement in any other transaction, as the provision of any investment advice or service, or as a contractual document. Nothing in this document constitutes an investment, legal, tax or accounting advice or a representation that any investment or strategy is suitable or appropriate for an investor's particular and individual circumstances, nor does it constitute a personalized investment advice for any investor. This document reflects the information, opinions and comments of Bank Syz Ltd. as of the date of its publication, which are subject to change without notice. The opinions and comments of the authors in this document reflect their current views and may not coincide with those of other Syz Group entities or third parties, which may have reached different conclusions. The market valuations, terms and calculations contained herein are estimates only. The information provided comes from sources deemed reliable, but Bank Syz Ltd. does not guarantee its completeness, accuracy, reliability and actuality. Past performance gives no indication of nor guarantees current or future results. Bank Syz Ltd. accepts no liability for any loss arising from the use of this document. 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