This PIMCO Perspectives assesses how the term premium’s 40-year downturn could start to reverse. In this PIMCO Perspectives, we explore the dispersion playing out across monetary policy and financial markets. The outlook for the second half of 2025 remains favorable for strategies emphasizing global diversification and risk mitigation. Continued steepening from inversion has historically been a meaningful precursor to broader rate cycles. The second half of the year may continue to present a complicated picture for bond investors. European CFOs must adjust as the region’s biggest pension buyer of long-dated debt cuts back.
Shorter-term bonds that are maturing sooner experience less price volatility as interest rates fluctuate. Rapid U.S. policy changes pose challenges for investors accustomed to a global financial system anchored in U.S. markets and assets. Key risks that could propel yields to a higher range would include additional fiscal stimulus in an economy that does not need it and further deterioration of expectations around government debt supply.
Short-term bonds may provide attractive income with smaller day-to-day price changes, while intermediate- and longer-term bonds can add income and may help diversify a portfolio if economic growth slows. The right mix depends on cashflow needs, time horizon, tax profile and how much portfolio volatility an investor can reasonably tolerate. When yields rise, it signals that markets expect higher interest rates, which could reflect a Federal Reserve (Fed) increase in the federal funds rate, or higher inflation or economic growth expectations. Conversely, when bond yields fall, it indicates anticipation of upcoming Fed rate cuts or slower growth and inflation. That depends entirely on an individual investor’s objectives, time horizon, tax situation, existing portfolio, and risk tolerance. We do not provide individualized investment advice in public commentary.
Earlier, it had intervened in the yen market through euro sales—a move that may have been intended to reduce Japan’s need to sell U.S. Markets now anticipate three additional hikes by mid-2027, including one more in 2026, reversing early 2026 expectations for rate cuts as inflation and energy prices remain elevated. “Markets now lean toward additional Fed rate increases this year, but inflation, oil prices and labor market conditions can shift the outlook,” says Tom Hainlin, national investment strategist with U.S. Bond investors can prepare for several outcomes by balancing short-, intermediate- and longer-term maturities instead of relying on one policy forecast.
Bond yields are climbing in response to increasing inflation risks as well as growing government-debt issuance, which is resulting in more competition for capital, according to Goldman Sachs Research. The demand for capital is also rising to build out infrastructure for artificial intelligence (AI) as well as for critical infrastructure such as energy and defense. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.
Midyear Investing Outlook
- That said, its contribution has remained fairly stable since mid-July.
- Investors may then demand higher long-term bond yields to offset the risk that inflation reduces the purchasing power of future interest payments.
- Bank and is not intended to be a forecast of future events or guarantee of future results.
- It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes.
It should not be assumed, and no representation is made, that past investment performance is reflective of future results. Nothing herein should be deemed to be a prediction or projection of future performance. Lofty U.S. stock valuations call for a renewed focus on risk assessment and portfolio diversification.
Is Now A Good Time To Buy Long-term Bonds?
Brokered CDs, which operate similarly to traditional CDs, can be purchased through a brokerage firm. Interest rates and terms vary, so shop around to find the best CD for you. Equities (or stocks) give you a share of a publicly traded company. And if the company performs well and the stock rises over time, you might eventually sell the stock for a profit. The sharp increase in capital spending is benefiting not just chipmakers and technology hardware companies but also traditional industrial and energy businesses involved in building physical infrastructure.
Where To Look When Equities Are Priced For Exceptionalism
Today’s bond market offers real opportunity, but it does not eliminate tradeoffs. Attractive yields give income-focused investors more room than they have had in years, yet policy uncertainty, inflation risk, and fiscal pressure still support a balanced approach. Investors who spread exposure thoughtfully and keep fixed income aligned with broader portfolio goals can improve their chances of earning durable income without taking uncompensated risk.
Yields on long bonds fell toward 1% to 2% or lower, supported by Federal Reserve monetary policy and low inflation. The estimated short rate path is the expected path for the short-term interest rate priced into the nominal Treasury yield curve after accounting for bond risk premiums. It is the measure relevant for macroeconomic and monetary policy analysis as well as risk management. Shown is the CR model-implied short rate path for the latest model estimates along with the rate path on the last day of the most recent FOMC meeting.
Bank of America’s Global Investment Strategy, using Bloomberg data, shows the recent trough is only the second period since 1936 when 15-year-plus Treasuries generated negative 10-year annualized returns. Fidelity makes new-issue CDs available without a separate transaction fee. Fidelity Brokerage Services LLC and National Financial Services LLC receive compensation for participating in the offering as a selling group member or underwriter. If you have a 401(k) or other workplace plan, you may already be investing how Fanfills handles verification and safety in one. Otherwise, you can invest in a target date fund through many brokerages.
After subdued growth in 2025, new corporate bond issuance has accelerated sharply, running 50% to 100% above the same period last year (Chart 5). With more government and corporate debt coming to market, investors have greater scope to demand higher returns, even if this debt is still largely considered safe to hold. The increase in interest rates is also undermining the valuations of “defensive” and “quality” parts of the equity market, which are most sensitive to interest rates and were largely valued as proxies for bonds. Currently, the extra yield, or “spread,” investors earn on average by buying a corporate bond—instead of a Treasury of the same maturity—is quite modest. That means investors receive relatively little compensation in exchange for taking on credit and default risk. Ware and team aren’t overly worried about these risks in the current economic environment—they feel that the corporate backdrop appears strong and aren’t forecasting an uptick in defaults.
As a consequence, each term premium estimate since then only contains information available up to the time of the estimate. For a mutual fund, the expense ratio is the total annual fund or class operating expenses (before waivers or reimbursements) paid by the fund and stated as a percentage of the fund’s total net assets. Expense ratios change periodically and are drawn from the fund’s prospectus. For more detailed fee information, see the fund prospectus or annual or semiannual reports. Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry. To invest in stocks, you could open an investment account at a brokerage firm and buy them on your own, use a robo advisor to automate the process, or work with a financial advisor to manage your portfolio for you.