Atlantic divergence: Fed holds, ECB cuts
In January 2025, the Fed kept its funds rate at 4.25%-4.50%, while the ECB cut its deposit facility rate by 25bps to 2.75%. The divergence across the Atlantic reflects different economic conditions: the US focuses on inflation control, while the Eurozone struggles with stagnation, needing more supportive monetary policy.
Higher-for-longer still the dominant theme
With the Fed cuts “on pause” and plenty of geopolitical uncertainties, the fixed income market continues to offer attractive yields. Investors should adopt a diversified approach, balancing high-quality government bonds with income-generating corporate and securitized credit. Meanwhile, EM bonds continue to present high-yield opportunities, but effective FX hedging strategies are needed.
Regional markets
In regional sovereign Eurobond markets yields on the bonds of Armenia, Georgia and Turkey declined, while Kazakhstan experienced a slight increase of 4.8bps.
