Amid dovish signals from the Fed and an expected SNB rate cut, bond markets diverged —European yields surged on fiscal expansion, Japanese long bonds hit historic highs, and EM resilience was tested by political and inflationary shocks.

Rising policy uncertainty is shaking up global fixed income markets—U.S. high-yield spreads surpass Europe for the first time since 2021, German yields surge on fiscal expansion, and central banks face tough choices amid inflation risks and slowing growth

Global fixed income markets saw historic moves last week, with German yields posting their second-largest weekly surge on record, the ECB delivering another rate cut, and U.S. rate expectations shifting higher.

The fixed-income landscape is shifting as U.S. Treasury yields drop, the UST-Bund spread collapses, and EM credit markets navigate widening spreads and political risks—setting the stage for a crucial month of central bank decisions.

Global fixed income markets remained volatile as Treasuries yields hit 2025 lows, ECB rate cut expectations waver, and China's bond yields spike, hinting at a potential economic rebound.

Stronger-than-expected U.S. inflation data briefly sent rate cut expectations tumbling before weak retail sales and PPI data reversed the move. Meanwhile, European bonds reacted to GDP surprises, while emerging markets saw sharp divergences—Ukrainian bonds rallied on peace talk hopes, but Mexican debt widened amid political tensions.

With long-term U.S. real yields hitting cycle highs near 2.5%, the Trump administration’s initiatives aim to restore fiscal credibility and lower borrowing costs—but execution risks remain high. Meanwhile, global central banks and markets react to inflation surprises, BOE rate cuts, and deepening trade tensions.

January saw global bond markets rally despite Trump’s tariff shock, the Fed’s cautious stance, and the ECB’s fifth rate cut—while EM bonds outperformed, fueled by easing U.S. rates and strong technicals.

Markets navigate a complex landscape marked by the Bank of Japan's rate hike to 0.50%, Trump's forceful return to monetary policy debates, and European credit spreads reaching multi-year lows, setting the stage for heightened volatility ahead.

Softer inflation data sparks a global bond rally, Japanese yields hit multi-year highs, and credit markets rebound with resilience, shaping an optimistic start to 2025.