Second Quarter 2025 Market Outlook

In an environment of pervasive macro risks, our second quarter market outlook looks at the factors that may support fixed income performance amidst the relentless uncertainty as well as the divergent trends across global markets. We also provide an assessment of the macroeconomic backdrop and share our sector views for the second quarter and beyond.

Key Convictions & Investment Themes                

Learn more about the three themes that shape our quarterly fixed income outlook:

Strategic Buy Zone for Bonds

As we referenced in Q1, the 2022 bear market hoisted yields to levels not seen in more than a decade, positioning fixed income markets—particularly the higher yielding sectors—for an extended period of solid returns. That backdrop remains in Q2 as do the uncertainties that will rattle markets over the near term. 

 

Bottom line: Bonds are positioned for solid returns, and they should outperform cash and equities if serious downside risks materialize.

Dislocations, Divergence, and Dispersion

Divergent markets can create value for those moving across regions, sectors, and issuers. In Q1, “American Exceptionalism” paused, boosting U.S. bond returns. Simultaneously, European credit outperformed on an excess return basis amidst expectations for accelerating European growth. 

 

Ongoing policy confusion seems destined to continue to prompt bouts of market turbulence that precipitates relative value opportunities.

Let Fundamentals be your Guide

The post-COVID bond market has been prone to dramatic overreactions and course corrections as participants struggle to understand the post-pandemic paradigm. The lesson for investors is clear: don’t confuse extreme market movements with changes in fundamental market trends. Rely on research and analysis to distinguish the market spasms from true changes in value and capitalize on reversions back to fundamentals.

Thank you for your interest in PGIM Fixed Income.

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