Now that tariffs have increased the threat of a slowdown or even a recession, bond futures reflect expectations of faster and further rate cuts from the U.S. Federal Reserve and the European Central Bank. However, the likelihood that tariffs will exacerbate already sticky inflation in the short term creates a difficult balancing act for central bankers. Within emerging markets, the International Monetary Fund (IMF) has lowered its 2025 growth projections, reflecting the impact of tariffs, prolonged trade policy uncertainty and supply chain disruptions. Meanwhile, global equities have experienced extreme levels of volatility, and credit spreads have widened amid concerns of a tariff war.
Against this backdrop, asset owners are increasing allocations across fixed income sectors (on a net basis), seeking geographic diversification — particularly those in Asia-Pacific and EMEA — and trusting bonds to provide a ballast against equity risk in portfolios. They are also taking a more defensive stance, adding duration and moving up in quality. At the same time, they say they are increasing their emphasis on active management as rebalancing and risk management become a bigger priority.
Private credit is also playing an increasingly important strategic role in asset owners’ portfolios, with 72% saying it should play a complementary role alongside public credit.
Beyond the 12-month horizon, asset owners are exploring more specialized mandates for building emerging markets debt exposure and considering a unified approach to managing public and private credit.
The survey linked below provides an in-depth analysis of these findings, investigating how these trends are evolving within the current economic and geopolitical context.