Bonds will see strong cumulative returns in 2025, PGIM predicts, irrespective of poor Q4 2024 results
Since late 2022, the firm states that bonds have seen positive returns as a result of central bank rate cuts and investor demand for yield and to lock in a long-term income stream. This will likely prevent yields from moving into a higher range, it added.
Money fund balances are high both in absolute terms and in relation to GDP, PGIM said. This elevation could be a sign of latent demand that may shift to bonds if rates continue to be cut.
PGIM predicts continued tight spreads as a result of continued demand for fixed income, moderate economic growth and benign credit fundamentals. This could allow credit products to continue delivering positive excess returns, it said.
Trade frictions are highlighted as a potential risk for the year, amid wider geopolitical tensions and policy changes. However, these factors are nothing new for the market, which has maintained a bullish status since 2022.
“Looking ahead, we will keep an open mind and will expect more of the same: quarter-to-quarter volatility within the context of a bull market carrying on,” PGIM said. Active management opportunities will emerge in the form of diverging fundamentals across countries, sectors and issuers, it added, in a broader setting of stable to lower long-term yields and range-bound spreads.
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