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S&P Global — 17 January 2025
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
The global market for fixed-income investments, such as bonds, was once considered quite sleepy. Fixed-income investors bought Treasurys, or some occasional investment-grade corporate debt if they were feeling adventurous, then collected their coupons and cashed out at maturity. But these sleepy markets created an opportunity for an arbitrage of effort — if other market players are content to sit on their hands, active management of bond funds could create a competitive advantage by buying and selling based on price fluctuations before maturity. Sure enough, a generation of traders, led by “bond king” Bill Gross at PIMCO, took fixed-income markets by storm.
S&P Dow Jones Indices has examined the traditional sources of excess returns for fixed-income active managers. Active managers have earned higher returns by assuming higher term or interest rate risk. Term refers to the amount of time between when a bond is issued and its maturity. Longer-dated bonds typically offer better relative returns than shorter issuance. Managers who could risk having their money tied up for longer could get better returns. However, sudden interest rate changes could transform a longer-term bond with a fixed rate into a very wise or a very foolish investment. Active managers could also achieve excess returns by dipping down the credit spectrum from the relative safety of Treasurys to investment-grade corporate debt, and ultimately to high-yield corporates. While there are notable exceptions, in fixed-income markets, risk is supposed to be positively correlated with return.
Beginning in 2024, some traditional sources of excess returns became less effective for fixed-income active managers. Rising interest rates meant that long-duration issuance, which previously benefited these managers, might have hurt them in 2024. A key reason for this reversal was the rise in long-term yields, visible in the surge of the 10-year US Treasury yield. Even before the US presidential election, robust economic growth, inflation concerns and hawkish signals from the Federal Reserve were driving up long-term Treasury yields.
Bond markets appeared nervous for much of 2024, as reflected by the options market with the CBOE 20+ Year Treasury Bond ETF Volatility Index (VXTLT), which functions as a “fear index” for bond markets. According to S&P Dow Jones Indices, the index has risen since early December 2024 to 17.51 as of Jan. 8, perhaps driven by market unease over the election results and associated tariff policies, the Fed’s future rate trajectory, and inflation.
“Coming off a rollercoaster 2024, as we look ahead to the Fed’s January 2025 meeting and a new presidential regime, the future path of U.S. Treasury yields may have important implications for multi-asset and fixed-income asset managers and asset owners when thinking about their risk profiles,” wrote Anu Ganti, head of US index investment strategy at S&P Dow Jones Indices.
Today is Friday, January 17, 2025, and here is today’s essential intelligence.
The next edition of the Daily Update will be published Tuesday, January 21.
As we move into 2025, the clean energy sector is witnessing transformative trends that are reshaping the landscape of energy production and consumption. The global commitment to emissions reduction has spurred unprecedented growth in clean energy investments, and we are seeing a surge in innovative technologies that promise to enhance efficiency, reduce costs and improve energy reliability. Additionally, geopolitical tensions, particularly concerning China's dominance in the clean technology supply chain, are influencing global energy strategies and investment decisions.
—Read the special report from S&P Global Commodity Insights
President-elect Donald Trump’s key policy initiatives — tax cuts, tariffs and deportations — will dampen GDP growth in 2025, although the larger effect on growth will be in 2026. Trump has proposed personal and corporate tax cuts, paid for with universal tariffs. He has also proposed mass deportations of undocumented immigrants. S&P Global Market Intelligence has assumed partial implementation of these proposals in our baseline growth forecast.
—Read the article from S&P Global Market Intelligence
S&P Global Ratings' Credit Cycle Indicator (CCI), a forward-looking measure of credit conditions, is signaling a potential credit recovery in 2025. However, an increasingly complicated macro landscape means it could play out differently across markets and sectors. The global CCI continues to signal a potential credit recovery in 2025, as it emerges from the early-2023 trough. This is taking place just as economic soft landings are materializing across major economies, and central banks are lowering policy rates.
—Read the article from S&P Global Ratings
At least 20 laden crude and product tankers blacklisted by the US have halted voyages from Russia, Iran and Venezuela since the start of the year as a major Western clampdown on "shadow fleet" tankers triggers concerns over significant disruptions to seaborne oil trade.
—Read the article from S&P Global Commodity Insights
German onshore wind additions are forecast to rise to a range of 4.8-5.3 GW in 2025, the highest since a record 2017 — after net additions flatlined in 2024, sector association BWE said Jan. 15. Germany installed 635 new onshore wind turbines with a combined 3.3 GW capacity, while 706 MW of capacity was retired, according to its annual report.
—Read the article from S&P Global Commodity Insights
The new year promises to bring further changes to the streaming, broadband and wireless markets as incumbent operators and new entrants turn to next-generation technologies to compete for subscribers. MediaTalk host Mike Reynolds is joined by a trio of S&P Global Market Intelligence Kagan analysts: Seth Shafer explores how major players like Netflix and Amazon are navigating the ad-supported video-on-demand landscape; John Fletcher reveals the growing consumer satisfaction with fixed wireless services and the implications for traditional cable operators; and Lynette Luna emphasizes the significance of standalone 5G as a gateway to enhanced services and the pivotal role of AI in optimizing network operations.
—Read the article from S&P Global Market Intelligence
As we kick off 2025, much of the optimism and concern of 2024 continues, with markets seeking clarity on the energy transition, climate risk and sustainability opportunities. Join our first Beyond ESG webinar of the new year to unpack key trends.
—Register for the webinar from S&P Global Sustainable1