Global Fixed Income Strategy: Mounting Policy Risks Drive Uncertain Outlook for US and Global Markets

MM April 2025 Global Fixed Income Strategy report warns of rising downside risks to the US and global economy, citing an uncertain policy environment and new tariff shocks. The firm outlines two equally probable scenarios for US growth: a benign slowdown or a recession, both triggered by trade tensions, fiscal contraction, and geopolitical fragmentation. Tariffs introduced on April 2—dubbed “Liberation Day”—are expected to disrupt real income growth, global supply chains, and export markets, with ripple effects across industries and regions. Financial conditions have tightened, and businesses face high uncertainty, discouraging investment.

In response, MM has downgraded its US interest rate stance to neutral and anticipates a softer US dollar. The euro, yen, and renminbi are overweighted, reflecting global repositioning away from US assets. Regionally, the firm remains overweight UK and Australian government bonds and underweight Japanese bonds. Overall, the report stresses that this is not a typical business cycle slowdown but a policy-induced deceleration with global consequences.