As we enter the final stretch of 2025, London-headquartered asset manager M&G’s fixed income team unpicks some of the key concerns pervading markets, and discusses the outlook for bond markets.

Striking an optimistic note, M&G fixed income team highlighted the benefits of investing in government bonds and emerging market debt at a conference in London last week.

Although many investors are pessimistic about the bond market, Andrew Chorlton, chief investment officer (CIO) at M&G, said the market is actually quite good. He believes that opportunities lie in government bonds, rather than credit, with yields at a high. “There are pressures but risks are fairly priced,” he said.

Yields on 30-year UK gilts rose to their highest level since 1998 last month, raising the chances that the government will need a mix of more tax rises and possible spending cuts in the Autumn Budget.  However, Lale Akoner, global market analyst at eToro, believes that for investors seeking income, high yields may be tempting. However, there is a risk that further fiscal slippage could push borrowing costs even higher. "For retail investors, that means gilt yields may stay elevated, offering income opportunities, but the volatility signals caution. Until the budget lands, the gilt market looks less like a safe haven and more like a barometer of political risk," Akoner said this week. See more here and here.

Chorlton also favours emerging market debt, saying it is the best performer to date with good dynamics going forward.

This was supported by Charles de Quinsonas, head of emerging market debt. “Everyone is bullish on emerging market debt,” de Quinsonas said. “Emerging markets have robust economic growth supported by a lower debt burden, relative to developed markets. The IMF still expects emerging markets to outpace developed markets. Growth is expected at 4.5 per cent in Asia, compared with 2 per cent in the US and 1 per cent in Europe.”  

Geopolitical risks remain, including tariffs on exports to the US, which can risk global growth. But de Quinsonas said the economic impact is less than the political noise suggests. “The impact of 50 per cent tariffs on India is limited as domestic consumption is the main driver of growth not exports. The economic impact on Brazil is also limited. While 20 per cent tariffs on Taiwan and Vietnam have a much bigger impact,” he said. "Inflation is also expected to slow down and yields remain attractive. With the positive outlook, some clients are moving towards emerging markets as a core allocation.” 

Latin America is a favourite market for M&G, with gems also in Sub-Saharan Africa. They are slightly underweight in Asia.   

Meanwhile, Eva Sun-Wai, fund Manager at M&G, highlighted the huge amount of uncertainty on the market but said the risks are not universal. She focuses on mispricing without compromising on yield. She likes emerging market debt and markets that tend to be overlooked such as Australia, New Zealand, and Norway. With the weakening of the dollar and as gold continues its rise, hitting a record $3,800/oz this week, Sun-Wai also favours gold as a safe haven asset and a good hedge against inflation risks.

Aakash Doshi, global head of gold strategy at State Street Investment Management, also believes that the strong momentum for gold isn’t letting up anytime soon. As long as inflation remains elevated, interest rates stay low, current global economic uncertainty persists, and central banks continue buying, the outlook for gold prices remains bullish according to Doshi.

They are not alone in their views. Vincent Mortier, group chief investment officer at Amundi, believes that gold and commodities are good hedges against inflation risks. He also thinks that the name of the game in 2025 will be diversifying away from the US and into European and emerging market bonds. See more here.