Steady Growth, Shifting Yields — Fixed Income Outlook in 5 Charts

October 2, 2025 — Despite a brief import-driven dip in Q1, the US economy continues to expand at a moderate pace, supported by resilient consumer activity and a labor market that appears to be in a “no hire, no fire” phase — marked by limited movement in hiring or layoffs. Inflation remains stable, with tariff-related pressures emerging in goods but offset by subdued housing and services costs. Against this backdrop, policy remains supportive: the Fed is expected to lower rates to 3% by next year, and strong tariff revenues may help moderate the fiscal deficit. For fixed income investors, the environment is constructive, with money market assets likely to rotate out the curve as yields decline, credit spreads offering limited upside, and mortgage-backed securities (MBS) continuing to present relative value. Overall, bond markets are on track for a solid total return year, with yields driving performance.