Image Source: Unsplash

Global fixed income markets have been buffeted by tariff-related tensions and inflation concerns coupled with monetary policy uncertainty, with many central banks cutting rates, Japan in tightening mode and the U.S. Fed ending its quantitative tightening program. Focusing on the U.S. and Europe, sovereign yield curves in both regions have steepened since late 2024, with the spread between the 10- and 2-year Treasury yield rising to 53 bps as of Nov. 10, 2025. Corporate credit spreads have also remained near historic lows, narrowing by 23 bps in the U.S. since the start of the year while remaining marginally above zero in Europe, as shown in Exhibit 1. These evolving dynamics can create a mixture of challenges and opportunities for active managers seeking to outperform their benchmarks.

(Click on image to enlarge)

Reflecting on the first half of the year, how did bond pickers fare? According to our SPIVA^® (S&P Indices Versus Active) Mid-Year 2025 Scorecards, 69%¹ of bond funds globally underperformed their respective benchmarks on a fund-weighted basis, higher than the 54% observed for equities. Looking across the U.S. and Europe, Exhibit 2 highlights that 90% of U.S. General Investment Grade Funds and 88% of U.S. High Yield Funds lagged their respective benchmarks, while European managers saw lower, but still significant, rates of underperformance in these categories. However, there were a few pockets of opportunity. Notably, nearly two-thirds of U.S.-domiciled Emerging Market Debt Funds outperformed their benchmark, benefiting from the tailwind of a weaker U.S. dollar that may have eased repayment conditions for issuers of U.S. dollar-denominated debt.

(Click on image to enlarge)

To better understand these results, it’s important to consider the traditional drivers of excess return for bond managers. Exhibit 3 illustrates the impact of term, credit and illiquidity premia on bond markets this year. In the U.S., the normalization of the yield curve favored managers who increased duration risk, while moderate tilts to riskier credit may have contributed positively. In Europe, however, markets may have been more difficult to navigate, with mixed results from increased credit risk and allocation to longer-dated bonds often not paying off. Greater tilts toward illiquid bonds would not have helped in the U.S. and appeared to offer minimal benefits in Europe.

(Click on image to enlarge)

Similar trends emerged in other major markets, including Australia, China and the U.K., where shifting monetary and fiscal conditions may have affected managers’ opportunities to generate excess returns. Only 5 of the 13 headline categories shown in Exhibit 4 posted majority outperformance in H1, evidence that outperformance remains elusive across fixed income markets globally. Over a 15-year horizon, none of these reported categories managed to beat their benchmarks.

(Click on image to enlarge)

As we approach the end of the year, uncertainty over the U.S. Fed’s upcoming December rate decision, labor market weakness and economic growth concerns continue to weigh on market participants. We will have to wait for our year-end 2025 SPIVA results to find out if bond managers were up to the challenge. In the meantime, for a closer look at how active fixed income managers performed in the first half of the year, explore our SPIVA Library.

¹ Calculated as the ratio of the number of funds underperforming YTD to the total number of funds at the beginning of the YTD period across all SPIVA regions.

More By This Author: