current
Interest Rate Declines
Central banks are expected to continue cutting interest rates, impacting bond yields and potentially boosting equities.
Timeframe
near-term
Categories
Impact areas
Detailed Analysis
The report anticipates that central banks, including the US Federal Reserve and the Bank of England, will continue to lower interest rates in 2025. This trend is already reflected in the 'uninversion' of the yield curve, with longer-dated bonds now yielding more than short-term ones. Lower interest rates could provide support to equity markets, but the magnitude of the impact remains uncertain. The report also highlights the potential for divergence in rate paths between different regions, adding complexity to fixed income investing.
Context Signals
US Federal Reserve expected to lower rates further.
Bank of England forecast to cut rates below 4% in the second half of 2025.
European Central Bank deposit facility rate likely to be near 2% by the end of 2025.
Edge
Investors may want to consider extending duration in their bond portfolios selectively during periods of volatility.
Opportunities may arise in short-dated, higher-yielding credit segments.
The potential for a 'bear steepening' of the yield curve could create volatility in fixed income markets.
