Global bond markets - yields normalize

Government bonds

The environment for government bonds remains characterized by declining but still present inflationary pressure. At the same time, the major central banks are transitioning from a restrictive to a neutral monetary policy. Yields have fallen slightly in both the USA and Europe, while market participants increasingly expect moderate further interest rate cuts in the coming quarters. US Treasuries remain a key anchor of stability due to their liquidity and attractive real yields. In Europe, Bunds are benefiting from defensive capital flows, while peripheral countries offer higher yields but remain politically more vulnerable. Swiss Confederates remain of high quality, but offer low nominal yields. Overall, government bond duration remains somewhat more attractive again, especially as a hedge against economic downturns and market volatility.

Conclusion: Remain a central anchor of stability in the portfolio with duration becoming more attractive in an environment of moderate interest rate cuts.

Investment grade bonds (IG)

The investment grade sector remains resilient. Corporate balance sheets are stable, liquidity buffers are well filled and refinancing conditions remain manageable despite higher capital market costs. Spreads remain at narrow levels, reflecting the robust fundamentals, but at the same time signaling that the additional risk premium is limited. Europe offers slightly more attractive all-in yields compared to the US, while the quality of the issuer environment remains high. IG bonds therefore remain a solid instrument for carry income with manageable risk. In an environment of gentle monetary easing, duration can be tactically increased without unduly increasing risk.

Conclusion: Against this backdrop, IG bonds continue to offer a reliable carry with robust corporate fundamentals and are suitable for defensive core allocation.

High yield bonds (HY)

The high-yield market continues to struggle with tight spreads, which limits the risk-adjusted return prospects. Although the liquidity of companies in the upper rating segment is decent, the pressure on weaker issuers is increasing. CCC securities in particular have a higher probability of default, while BB securities offer the most attractive risk/return ratio. The US market remains broader and more liquid, while Europe has a more defensive structure but is more susceptible to macroeconomic downturns. Overall, HY bonds continue to make sense only as a selective addition, with a clear focus on quality, short to medium maturities and stable sectors.

Conclusion: HY bonds remain only selectively attractive, with a focus on BB quality, as narrow spreads and rising default risks limit the risk buffer.  

Emerging Markets Bonds (EM)

Emerging markets continue to benefit from the fact that many of their central banks have started the rate-cutting cycle earlier and thus offer attractive real yields, especially in local currency. Latin America in particular stands out positively, while Asian markets are characterized by strong macro fundamentals but lower yields. EM hard currency bonds remain interesting, but are heavily dependent on the development of the dollar and global risk appetite. Geopolitical uncertainties and commodity price fluctuations remain key risks, but are cushioned by higher carry yields. EM bonds remain a diversifying source of income, but should be deliberately weighted and used with a clear focus on quality countries.

Conclusion: We currently advise investors with a risk appetite to build up this asset class via ETFs or funds.

Mimi Haas, Lic. rer.pol. HSG, M.A. in Banking and Finance HSG, Partner

_{Sources: MarketMap, Bloomberg and DWS}

_{Status:24.11.2025}