Bond Yield-Curve Movement
Global yield curves shifted in 2025—US rates fell, many others rose—boosting opportunities for flexible, diversified bond portfolios.
Bond yield curves around the world saw substantial movement in 2025. It’s hard to imagine many interest rate forecasters correctly predicting the direction of all these shifts.
Much of the US Treasury yield curve moved downward year over year, with the decline especially pronounced among bonds with shorter maturities. Investors who closely followed Federal Reserve activity and commentary might have anticipated that movement. But anyone who extrapolated that expectation to other markets would have been wrong more often than right: Most non-US dollar (USD) bond yields rose in USD-hedged terms in 2025.
The net effect of these rate movements is an improved opportunity set for globally diversified bond portfolios. Investors now have higher yield levels across many issuing currencies. Additionally, several yield curves feature relatively steep upward sloping segments, which can increase expected returns for strategies that take on greater exposure to longer-maturity bonds.
These recent shifts in the bond market highlight the importance of allowing bond portfolios the flexibility to adjust which market segments they emphasize. Index-tracking bond strategies, by contrast, tend to maintain more static allocations—potentially leaving returns on the table.
EXHIBIT 1
Yield-Curve Changes
Differences between USD-hedged yields as of December 31, 2025, vs. December 31, 2024
Glossary
Expected return: An estimate of average anticipated returns informed by historical data.
USD-hedged bond yield: A bond yield that has been hedged to US dollars. Currency hedging refers to investing in financial instruments intended to offset the impact of exchange rate fluctuations on bonds traded in a foreign currency.
Yield curve: A graph that plots yields at a specific point in time of bonds with similar credit quality but different maturity dates. A curve’s slope can vary through time based on changes in the shape of the curve and the level of yields. Generally, curves can be upward sloping, downward sloping, or flat.
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