Crawmer expects 2025 to be a good year for fixed income, following two strong years in 2023 and 2024. If his soft-landing forecast holds up, he thinks investors will be rewarded. He expects all-in returns on investment grade assets in the 5 per cent area.  

Crawmer is overweight quality and liquidity in how he holds market positions. “Spreads have narrowed to the point where you’re not getting paid to take on the risk of lower-rated or less liquid bonds,” he said in a note. 

Other wealth managers like Boston-headquartered State Street Global Advisors, the asset management arm of State Street Corporation, also retain their favorable outlook for fixed income in 2025. See more commentary here.

Inflation returning main risk to fixed income markets
Acceleration of inflation is the obvious risk out there, but that’s not Crawmer’s base case. He expects inflation to fall. “A lot of the noise out there around inflation is just the bumpiness that's natural with inflation as it comes down or goes up. There's going to be big lag effects on inflation because there are some parts of the contributors to inflation that take a lot longer to work themselves out, for example, the housing market,” Crawmer said.

A problem for any predictions on inflation is that a US Donald Trump administration with control of Congress passes an inflationary agenda like tariffs, lower taxes, curbs on immigration, and presides over higher fiscal deficits. Crawmer expects the actual Republican agenda to be less inflationary than feared by the markets. However, if the agenda does come to fruition in a manner that's a lot more inflationary than what he is expecting, the result could be a reacceleration of inflation that would be problematic for fixed income markets.

Quality and liquidity remain attractive
Crawmer is positioning himself with an overweight to credit across all strategies. He thinks central banks are going to be able to navigate a soft landing. In that soft landing environment, he expects strong economic conditions, robust employment, and declining inflation. That's good for credit across the board.

Even though Crawmer is optimistic about the outlook for the economy and the soft landing, investors won’t get compensated if they go down in quality and down in liquidity. He'd rather carry his overweight to credit via safer, higher quality parts of the market that would have less downside if something unforeseen happens.

Value in regional bank debt
“In investment grade, corporate fixed income, the new administration will benefit banks,” Crawmer continued. “Less regulation on the banks allows them to be more profitable. Also, the banks will benefit from a stronger economy and lower corporate taxes will benefit the smaller cap and more regional businesses.”

“The specific banks that would benefit from that would be those regional banks that operate more in a geographically concentrated area, like the Midwest, or have a focus on middle market businesses. They are trading cheap versus other banks out there and should benefit from a Trump administration and a Republican Congress and Senate,” he added.

Outside of that, there has been a lot of yield compression between the sectors. “There isn't a lot of low hanging fruit where one sector is trading significantly cheaper to the others. That means that when you pick your sectors, you must be more cognizant of what the downside could be than the upside. You want to be wary of cyclical or historically more risky corporate sectors,” Crawmer said. “For example, in communications/media areas, where there is a lot of potential for merger and acquisition, sponsor, and private equity activity that could cause spread widening. Those are the areas where you could see some spikes in volatility and some downside,” he added.

Issuance will be steady - but watch M&A
Crawmer thinks it's going to be a standard year for issuance, close to in line with this year. Most of it's going to be refinancing activity as issuers just continue to refinance any near-term maturities. That said, there is the possibility of more merger and acquisition activity that could drive issuance up with the Trump administration, which is likely to be more lenient in regard to approving M&A than what has been seen under the Biden administration. 

Municipal bonds still attractive, especially in high tax states
"Muni" bonds will be a relatively safe place, Crawmer said. Munis fall into the higher quality part of the market that Crawmer likes.“However, the sector has compressed , so there's not a lot of free money to be made in municipals. Lower taxes could steer some money away from munis. But overall, they should hold up well, especially in high tax states,” he concluded.

With $163.8 billion under management, Los Angeles-headquartered Payden & Rygel is a large privately-owned global investment advisor focused on fixed income and equity portfolios, with offices in Boston, London, and Milan. It provides investment strategies and solutions to investors around the globe, including central banks, pension funds, insurance companies, private banks, and foundations.