Here's what will drive the bond market in 2025

As 2025 gets underway, investors are closely watching the factors that could influence the bond market.

Transcript

00:00And which do you think is going to have more influence on the bond market in 2025

00:05and on interest rates, a Trump White House or the Federal Reserve?

00:11In 2025, I think that it's really going to be more driven by the new administration.

00:18The Federal Reserve will be somewhat reactive to the data. And so depending on how the data

00:25comes out will depend on how the Federal Reserve is going to react. I think that

00:33moving into 2025, the impetus is going to be more on fiscal policy and less on monetary policy.

00:41So given that, what do you think will be the most prudent bond strategy for 2025?

00:50The most prudent bond strategy in our minds is to invest on the front of the curve,

00:55that one to five year part of the curve. Really, three to five years is probably the sweet spot

01:02on the curve, just because right now the front end of the curve is so flat. Between two years

01:08and 10 years, you don't have much steepness at this point. So it is worthwhile to go ahead

01:15and invest in that three to five year part of the curve. I would think about the belly of the

01:22curve, that 10 year part of the curve. If yields get higher above four and a half, then we would

01:28think about filling in that part of the curve. And then at the long end, that's where we would

01:33be underweight because we do think that there's going to be upward pressure. And as the Fed cuts

01:39rates in interest rate environment that allows for more growth, we think that we're going to

01:49have basically a bifurcated yield curve where the front end of the curve will come down, the long

01:55end of the curve will go up. So you're going to have a much steeper yield curve. So therefore,

01:59on the back end of the curve, we are tending to think more like underweighting that part of the

02:05curve.