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The unusual bull market that started towards the end of 2022 continued through the second quarter of 2025. In contrast to a typical bull market where the dominant driver of returns consists of a wholesale drop in yields, this bull market continues to be mostly fueled by the simple accrual of yield itself as well as the incremental return on spread products. Credit products have not only posted the best performance this year, but they have also turned in the best performance over the duration of the bull market. The riskier sectors, such as high yield and emerging market hard currency, have posted the highest returns.
Looking ahead, geopolitical risks and trade tensions will likely remain high. However, moderate growth and moderating inflation in major developed markets look set to continue, with Western central banks generally expected to hold or cut rates in the quarters ahead. In turn, this is likely to keep overall rate levels stable to lower, albeit with the potential for further yield curve steepening. On net, this backdrop of stable to falling rates should support the bond market overall. We expect to see intermittent bouts of volatility in credit spreads as events unfold. Nonetheless, the underlying durability of fundamentals, along with the favorable supply/demand balance in credit markets, generally suggest that spreads may remain towards the bottom end of their historical ranges in the quarters ahead. This should support further, albeit more modest, outperformance by credit products.
Despite headline-driven bouts of volatility, stable-to-lower yield curves with range bound credit spreads should allow the bond bull market to continue. Selectivity will be key, with the higher yielding credit sectors likely delivering the highest returns.
At a glance – PGIM Fixed Income sector views:
The full PGIM Fixed Income Market Outlook is available for professional investors only.
1TBA refers to to-be-announced securities, which represent a contract to buy or sell MBS on a specified date.
The views expressed in this article are those of PGIM Fixed Income as of July 2025.
The views expressed herein are those of PGIM Fixed Income investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute an offer to sell or a solicitation to buy any security.
Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
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