Portfolio Management Outlook: Positioned for Opportunity in a Shifting Market Environment

This Portfolio Management Outlook is excerpted from the Second Quarter 2025 Fixed-Income Sector Views.

As we move through 2025, the fixed-income landscape presents compelling opportunities despite market uncertainty. Yields remain historically attractive, creating a favorable risk-return profile for long-term investors. Credit spreads have widened to historical averages, creating opportunities in higher quality assets in an environment of spread decompression. Strong technicals support the market as elevated yields constrain supply while simultaneously boosting investor demand. Fundamentals remain solid for higher quality credits despite broader economic concerns. Idiosyncratic credit themes are likely to continue to pop up, either from policy changes or market reaction, which should increase performance dispersion and favor active management.

Strategic Positioning

In this environment of heightened volatility, we're emphasizing:

• Select investment-grade and BB corporates as spreads have widened, in addition to high grade structured products (ABS, CLOs, non-Agency RMBS) and Agency MBS (favoring higher coupon structures).
• Tactical yield curve positioning with a bias toward the belly of the curve (2-5 year segment), which historically outperforms during easing cycles.
• Maintaining strategic liquidity buffers to capitalize on market dislocations while providing downside protection.
• Opportunistic additions to Treasury inflation-protected securities (TIPS) during periods when inflation breakevens fall to particularly low levels.

Interest Rate Outlook

The Federal Reserve (Fed) faces a challenging balancing act in the months ahead. We anticipate continued policy and economic volatility, which should manifest in a lower policy rate over time, with 4-6 rate cuts over the next year as labor market conditions soften. This should support a steepening yield curve, with:

• Front-end rates likely to move and remain below 4 percent as the markets price in Fed easing.
• The 10-year Treasury yield expected to trade in its recent two-year range: 3.5–4.75 percent.
• Long-end yields potentially remaining elevated due to inflation concerns and Treasury issuance needs.

Summary

The extreme market volatility we’ve witnessed recently—with the S&P 500 trading in a 15 percent range and high yield spreads moving 120 basis points in a single week—underscores the importance of active management and maintaining flexibility. By positioning portfolios to potentially benefit from these dynamics while maintaining disciplined risk management, we believe investors can capture attractive risk-adjusted returns even amid market uncertainty.

—By Anne Walsh, Steve Brown, Adam Bloch, and Evan Serdensky

Important Notices and Disclosures

One basis point is equal to 0.01%.

S&P bond ratings are measured on a scale that ranges from AAA (highest) to D (lowest). Bonds rated BBB- and above are considered investment-grade while bonds rated BB+ and below are considered speculative grade.

This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the authors, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.

Investing involves risk, including the possible loss of principal. In general, the value of a fixed-income security falls when interest rates rise and rises when interest rates fall. Longer term bonds are more sensitive to interest rate changes and subject to greater volatility than those with shorter maturities. During periods of declining rates, the interest rates on floating rate securities generally reset downward and their value is unlikely to rise to the same extent as comparable fixed rate securities. High yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility. Investors in asset-backed securities, including mortgage-backed securities and collateralized loan obligations (“CLOs”), generally receive payments that are part interest and part return of principal. These payments may vary based on the rate loans are repaid. Some asset-backed securities may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity and valuation risk. CLOs bear similar risks to investing in loans directly, such as credit, interest rate, counterparty, prepayment, liquidity, and valuation risks. Loans are often below investment grade, may be unrated, and typically offer a fixed or floating interest rate.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, and GS GAMMA Advisors, LLC..

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