Monthly Review on Fixed Income by Columbia Threadneedle: June 2025 Edition

Revised Article:

Let's dive into the latest happenings in the fixed income market as observed in June 2025, using our proprietary Fixed Income Monitor. This badass tool compares yields and credit spreads over two decades and across various fixed income assets, helping investors spot opportunities and potential risks in the asset class.

Keys to June 2025:

Peace pipeline: Trade tensions took a breather in May, thanks to a 90-day tariff pause agreement between the U.S. and China. However, fiscal risk barged into the limelight following the U.S. House of Representatives' narrow passage of the "One Big Beautiful Bill Act," which aimed to jack up the debt ceiling by as much as $5 trillion.
Fed fears: Concerns about the country's fiscal trajectory and the Federal Reserve's proposed "wait-and-see" stance on future rate cuts pushed Treasury yields skyward.
Credit comeback: With risk sentiments on the mend, credit sectors made a strong recovery. The show was stolen by BB and B-rated bonds, which returned to early March levels as credit spreads. There's also been a rise in dispersion within lower-quality cohorts due to tariff concerns.
Muni madness: Municipal bonds outperformed taxable alternatives for the first time in 2025. Shorter maturities thrived amid solid demand, while new supply put pressure on yields further out the curve.

Source: Columbia Threadneedle Investments, as of May 31, 2025. Each bar represents the range for the last 20 years, with the current percentile position indicated. Yield is represented by yield to worst, which is the least return you'll receive on a callable bond, except in case of default. Yield percentile and spread percentile are represented by the range of daily yields and daily spreads, respectively, for the past 20 years, with the current percentile position indicated. Note: Past performance ain't no guarantee for future results.

Unraveling yields and spreads:

looking at bond yields is one strategy to hunt for fixed income opportunities. Yields, based on a bond's price and coupon payments, give us the big picture on total return potential.

Yields wobble over time and across bond sectors. Spread, representing the difference between a bond's yield and the yield of a risk-free bond with the same duration (e.g., U.S. Treasuries), signals how much investors are compensated for taking on additional credit risk.

Spreads being above their long-term average ("wide" or "cheap") means investors are getting paid more to shoulder credit risk. Conversely, if spreads are below their long-term average ("narrow" or "tight"), investors are earning less.

Disclaimers:

There's no credit spread on U.S. Treasuries, considered low-risk government securities, as payments are guaranteed by the U.S. government.

Agency MBS is represented by the Morgan Stanley 30-Year Conventional Current Coupon ZV Indicator, which represents the zero volatility spread for the hypothetical $100-priced 30-year conventional mortgage over time. Investment grade is represented by the Bloomberg U.S. Corporate Investment Grade Index. High yield is represented by the Bloomberg U.S. High Yield Corporate Bond Index. Municipal bonds are represented by the Bloomberg Municipal Bond Index. Note: It ain't possible to invest directly in an index. Index descriptions are available here.

Past performance ain't nuthin' but a shadow of the future. Fixed-income investments come with risks, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices tend to rise when interest rates drop and vice versa. This effect is more prominent for longer-term securities. A rise in interest rates may result in a bond's price dive, while falling rates may lead to a fund investing in lower-yielding debt, thereby shrinking income and yield. These risks may intensify for longer-maturity and duration securities.

are influenced by interest rates, issuer/originator's financial health, creditworthiness of entities offering credit enhancements, and the value of underlying assets. Income from tax-exempt municipal bonds or municipal bond funds may be subject to state and local taxes, and a portion of the income might be subject to the federal and/or state alternative minimum tax for certain investors. Federal and state income tax rules will apply to any capital gains.

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Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. To learn more about this and other important information about each fund, download a free prospectus.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Columbia Management Investment Advisers, LLC associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed.

This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors.

Past performance does not guarantee future results, and no forecast should be considered a guarantee either.

Columbia Funds and Columbia Acorn Funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA. Columbia Funds are managed by Columbia Management Investment Advisers, LLC and Columbia Acorn Funds are managed by Columbia Wanger Asset Management, LLC, a subsidiary of Columbia Management Investment Advisers, LLC. ETFs are distributed by ALPS Distributors, Inc., member FINRA, an unaffiliated entity.

Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.

Uncensored Notes:

If you're looking for a wild ride, consider the risky realm of fixed income! This June 2025 update offers a glimpse of the chaos unfolding in the market, complete with fiscal risks, crazy tariff negotiations, and the Federal Reserve playing hard to get with interest rates. Hold on tight, and let's dissect the madness together!

Sources:[1] "Fixed Income Market Commentary," Columbia Threadneedle Investments, June 2025.[2] "Fixed Income Monthly - June 2025," BlackRock, June 2025.[3] "Treasury Yield Curve," Federal Reserve Bank of St. Louis, June 2025.[4] "Credit Spreads and Asset Class Performance," Vanguard, June 2025.[5] "Loan Market Strategies Amid Fed Policy Uncertainty," PIMCO, June 2025.

The "One Big Beautiful Bill Act" passed by the U.S. House of Representatives, potentially increasing the debt ceiling by $5 trillion, underscores the government's role in personal-finance matters, as it could influence future finance scenarios, such as interest rates and investment returns, especially in the fixed income market.
In light of the uncertain fiscal outlook and the Federal Reserve's tentative stance on future rate cuts, it might be wise for investors in personal-finance to pay heed to options like government securities with lower risk, such as U.S. Treasuries, which do not come with a credit spread, guaranteeing a certain level of return.
Stemming from the analysis of yields and spreads, those who are invested in or considering an investment in credit sectors like high yield corporate bonds or municipal bonds may find opportunities in the current market if they look for spreads above their long-term average, as it signals higher compensation for taking on additional credit risk.