Hi everyone, I’m JoAnne Bianco, Senior Investment Strategist at BondBloxx, and I’m excited to share our 2025 Fixed Income Market Outlook.

Let’s start with a quick look back at 2024, which was a remarkable year for the U.S. economy. GDP growth, corporate earnings, and consumer spending all remained strong. Looking ahead to 2025, we’re optimistic about continued strength. Here’s what we’re thinking:

• First, we expect continued economic expansion, driven by the fiscal policies of the new presidential administration. This could translate into a higher nominal growth rate next year.
• Second, we’re expecting labor markets to remain stable enough to support this growth.
• And finally, we expect consumers will keep spending, and corporate fundamentals will remain healthy.

What does all of this mean for fixed income?

In our view, it points to interest rates staying higher for longer. With strong growth, sticky inflation, and potential policy changes, the Federal Reserve seems likely to take a “wait and see” approach to further rate cuts. Candidly, we don’t see enough evidence that more stimulus is needed. Elevated rates are great news for fixed income investors as they could support a continued period of strong total returns, particularly in credit.

So, let’s dive into where we see compelling fixed income opportunities in 2025

• First- we think prioritizing credit is key – With strong fundamentals and higher yields, private credit, high-yield bonds, and BBB-rated corporate bonds are our top picks.
• Second- we think investors should stay short in duration – We just don’t see the benefit of materially extending portfolio duration given the expectation for continued volatility in long-dated bonds.
• We feel this way across all fixed income categories, from U.S. Treasuries to tax-aware strategies, stay short.

So, let’s get under the hood and dive into these picks.

Starting with private credit. Over the past 18 years, private credit has delivered the second-highest annualized returns, just behind the S&P 500, with the lowest volatility of any asset class. One compelling area of private credit is middle market loans. Middle market companies are in a great position to benefit from strong U.S. economic conditions. They tend to offer consistently higher yields than their larger, publicly traded peers as well as portfolio diversification benefits
for investors. Traditionally, investment in private credit has been limited to institutional and high-net-worth investors, but now it’s more accessible to all investors through ETFs.

Another area we think investors should be allocating to is U.S. high yield, which again for 2025 is one of our top picks. High-yield bonds have been on a roll, outperforming all broader fixed income indices for the past two years. Strong corporate fundamentals have continued to reward investors that allocate to most higher yielding categories within high yield.

For example, CCC rated bonds have been distinguished as the top performer not only within high yield, but in all of fixed income, up more than 20% in 2023 and up over 14% this year. Even the rating category with the lowest returns in high yield, BB-rated bonds, have achieved returns 50% greater than the US Corporate Index benefiting from the higher coupon income that BBs generate relative to investment grade rated bonds.

We think high yield will outperform again in 2025, once again, due to their coupon along with its lower volatility versus longer duration bonds.

Lastly, let’s talk about investment grade corporate bonds. As I’ve already said, we think reaching for yield across credit makes sense given strong economic conditions and supportive corporate fundamentals. Within the investment grade space, we expect BBB rated corporate bonds to continue their track record of outperformance.

We think BBBs are a sweet spot in the investment grade universe because the extra coupon boost they offer comes without taking on much additional credit risk. Across all maturity ranges, BBBs have consistently outperformed broad US Corporate and Aggregate indices, all while maintaining near-zero default risk.

To sum it up, we’re seeing a lot of opportunities across fixed income in 2025. It’s an exciting time to be looking at bonds as a dynamic engine for income. As we expect performance across asset classes to potentially remain differentiated next year, we don’t recommend a “set it and forget it” US Aggregate approach. Instead, we urge investors to take a long look at credit, reach for yield, while staying shorter in duration.

If you have questions or want to learn more, please reach out or visit us at BondBloxxETF.com.

Thank you for joining us today.