The intersection of macro forces and market events is striking in today’s environment. With that in mind, the CFA Society New York recently interviewed Christopher M. Chapman, CFA, our head of global multi-sector fixed income. Chris highlighted some macroeconomic themes that he believes investors should be keenly aware of, before pivoting to three of his team’s latest views on how allocators can successfully navigate a complex global bond landscape. This distilled version of Chris’s remarks has been recast in narrative format.

The thematic macro framework

From a macro standpoint, it’s fair to say that 2025 has given investors a lot to unpack.

U.S. trade protectionism, in the form of historically high tariff rates across virtually all global trading partners, has introduced heightened uncertainty into the macroeconomic backdrop, with potentially important implications for global inflation, interest rates, economic growth, and capital flows. That, in turn, has triggered bouts of market volatility across multiple asset classes. While the overall intent of U.S. trade policy was widely anticipated entering 2025, the scope of the tariffs and the volatile manner of their implementation have unsettled markets.

The sustainability of U.S. fiscal policy is also of mounting concern to financial markets. With the nation’s debt-to-GDP ratio ever on the rise, along with mounting borrowing costs to service the huge debt burden, many fixed-income investors are paying much closer attention to the trajectory, quality, and productivity of federal government spending. Unlike developed countries such as Germany, which are undertaking fiscal expansion from stronger positions, the United States faces a more complicated fiscal outlook.

Relatedly, after an extended period of relative strength since 2008, U.S. dollar (USD) weakness versus foreign currency counterparts in 2025 has helped lift many international assets and fueled a broader debate around U.S. exceptionalism, including whether the dollar’s unrivaled dominance of global currency reserves might be gradually on the wane. Indeed, the greenback’s share of world reserves has already been slowly but steadily declining—from over 70% in the late 1990s to just under 60% in 2025.

Finally, divergent monetary policy stances across global central banks may create overlooked opportunities in the fixed-income space, particularly for active portfolio managers who can nimbly adapt to and exploit shifting interest rate cycles. While inflation has moderated globally, the pace and direction of policy moves have varied by region. As of this writing, the U.S. Federal Reserve seems likely to cut rates by year-end 2025, while the European Central Bank is further into its policy-easing cycle. By contrast, the Bank of Japan has hiked rates this year.

Three timely investment ideas

Within this extraordinary macroeconomic context, three of the team’s actionable investment ideas have come into sharp focus in 2025:

1 Higher-risk credit: proceed cautiously
Buoyed by healthy starting yields, high-yield bonds posted positive total returns and outperformed U.S. Treasuries in the first half of 2025. However, high-yield credit spreads have tightened of late, suggesting that higher-quality sources of yield may be worth considering. Moreover, if a pronounced risk-off environment were to take hold, the traditionally elevated level of correlation between high yield and equities could undermine the diversification benefits many investors expect from their fixed-income assets.

Therefore, while an appropriate portfolio allocation to high yield may continue to make sense, we believe investors should be wary of over-indexing their strategies to this and other higher-risk credit sectors. Instead, a multi-sector fixed-income strategy that also features U.S. sovereign debt, municipal bonds, investment-grade corporates, and a range of non-U.S. issues (including both developed and emerging markets) may be a more resilient approach to generating income and total return.

2 The search for opportunity: go global
The U.S. fixed-income market is the world’s largest, deepest, and most liquid. Accordingly, U.S. investors as a group have long exhibited a home bias toward their own domestic bond universe, but many recognize that thoughtfully allocating across both developed and emerging markets can augment the investment opportunity set and perhaps improve the portfolio’s risk/return trade-off. So, where to look these days?

With global central banks pursuing different policy paths, sovereign bonds issued by developed nations such as Australia and New Zealand may offer competitive yields and sound credit profiles. Meanwhile, emerging-market debt from higher-growth countries like Indonesia may provide opportunities for both compelling yields and currency appreciation, with the caveat that investors must be selective and prepared to manage the associated risks.

3 Global currencies: harness the active edge
When investing in overseas debt, active global currency management can be a powerful differentiating factor for a fixed-income portfolio. In the case of a U.S. investor, for example, complementing USD-denominated assets with some foreign currency exposures may help enhance the portfolio’s risk-adjusted return potential.

This may be an especially additive tactic in light of the USD’s recent downward trend, which some economists think could persist and maybe even pose a long-run threat to the greenback’s safe haven status as the global reserve currency of choice. However, even as some investors begin to explore alternatives to the USD, its structural advantages—above all, in times of severe market stress—still remain unmatched.

"When investing in overseas debt, active global currency management can be a powerful differentiating factor for a fixed-income portfolio."

Tying it all together

Whether the portfolio objective is income, total return, or both, a key takeaway for investors is to avoid overreliance on any one bond sector, global geography, or currency.

The current macro and market setting, while not without challenges, appears ripe for effective fixed-income diversification. Aided by diverging central bank policies and changing global currency dynamics (due, in part, to U.S. trade and fiscal policies), we believe there is no shortage of attractive opportunities available worldwide.