BlackRock has just published its latest fixed income outlook for the second quarter of 2025. James Turner and Simon Blundell, co-heads of European fundamental fixed income at BlackRock, explaining why now is the time to shift allocations from cash to bonds.

With all-in yields at multi-year highs, James Turner and Simon Blundell at US-headquartered investment manager BlackRock think that now is an opportune time to shift allocations from cash into bonds. Cash levels remain at multi-year highs.

US and European Union money market assets sit at $7 trillion and $1.3 trillion respectively.

“The persistence of elevated rates on a forward-looking basis suggests that the opportunity set for fixed income is ripe for yield,” Turner and Blundell said in a note. “Fixed income investors can benefit from the ability to both lock in high yields as cash rates fall, while also benefiting from the structural persistence of elevated normalised cash (risk-free) rates going forward. In this context, fixed income has become a core component of portfolios – providing income, stability, and a timely opportunity to strengthen overall allocations.” 

“Today’s fixed income market offers attractive income opportunities across a broad range of assets, without the need to take on excessive risk. Investors no longer need to extend duration or lower credit quality to be rewarded,” they continued.

Turner and Blundell believe that significant dispersion exists within the European high yield sector, in particular, presenting opportunities for active management to pick winners and avoid losers. “More generally, economic and policy trends are driving dispersion across regions, sectors and issuers – all of which favours a more flexible and dynamic approach to positioning to navigate volatility,” they said.

Overall, they favour a risk-conscious approach to income generation and see attractive opportunities across global fixed income, with high-quality segments of the European securitised market, for example, offering attractive risk-adjusted returns.

They think credit fundamentals are robust, supported by strong earnings in recent quarters – while default rates remain low. Corporate yields remain above earnings' yields, despite ongoing spread compression. In rates, they see a reward from relative value in cross-regional views, as monetary and fiscal policy are more desynchronised, evidenced by the divergent strategies of major central banks.

Looking at sectors, Turner and Blundell favour financials. They also see attractive opportunities in utilities, with the energy transition resulting in record-breaking levels of capex and debt issuance.

They highlighted how the environment is particularly conducive for targeting income. They believe that investors should consider investing in the asset class to “clip the coupon.” This could not hold truer than for longer-term investors. While Turner and Blundell believe that income wins in the long term, they also believe that capital appreciation can help drive returns, particularly when considering their active approach.  

Turner and Blundell see a case for actively managed multi-sector income solutions in today’s fixed income markets. Such strategies look beyond core bond holdings (investment-grade credit, government debt) and invest in “plus” sectors (high-yield credit, securitised assets, and emerging market debt), offering the potential for higher yields and improved diversification.