Michel Vernier, head of fixed income strategy at London-headquartered Barclays Private Bank, discusses the outlook and investment opportunities for bond markets in 2025 in an interview with this news service.

In an interview with this news service in May, Michel Vernier at Barclays Private Bank highlighted that now is a great time to own bonds – yields are quite attractive.

However, after US President Donald Trump imposed significant tariffs on imports to the US creating extreme market volatility, Vernier emphasised the need to have a diversified approach: “High-quality securitised credit offers strong carry yields and reduced rate sensitivity, making it a reliable diversification tool.”

Vernier sees a better premium in investment grade credit in emerging markets, compared with US investment grade. He pointed to investment opportunities in India, in particular. “Hard-currency emerging market debt also provides a pool of opportunities, but careful selection and timing is key,” he continued. He hasn’t ruled out a recession in the US. Although high yield markets are interesting, US high yield bonds are more vulnerable; consequently, Vernier is more underweight in high yield. “Over the long-term, high yield has favourable characteristics in a diversified bond portfolio, showing superior yields compared to investment grade,” he said.

After Germany and the EU hiked defence spending earlier this year, Vernier has seen a shift in demand towards European bonds. “It’s a game changer, with more infrastructure spending expected,” he said. “The European bond market has had difficult days due to geopolitics and Russia’s invasion of Ukraine, but that has changed.” 

“Government bonds should do well in 2025, particularly German ones,” Vernier continued. He is also seeing some client demand for green bonds.

Other investment managers are also positive about fixed income in 2025. David Zahn at California-based Franklin Templeton, for instance, is quite positive about the outlook for fixed income in Europe for the rest of this year. In particular, he sees opportunities in short-duration assets. Zahn is also seeing investors holding fewer US assets, suggesting that European assets are a way of diversifying out of US assets.  See more here.