2025 Credit Outlook: On Firm Ground, Despite Shifting Political Sands

2025 is ushering in new political regimes across the world, and with them a spate of untested policy proposals. Against this potentially disruptive backdrop, we expect credit markets to benefit from high starting yields, sound fundamentals and pent-up demand.

The election of Donald Trump to the presidency may signal lower marginal tax rates, higher GDP growth and increased protectionism in the US. In other parts of the world, we think growth rates are likely to be uneven after a year of punishing elections that exiled incumbents and injected uncertainty into the credit markets.

Will Tariffs Help or Hurt? It Depends

Protectionist policies carry both opportunities and risks. Stiff tariffs promised by the incoming US administration could hurt companies with long supply chains outside the US and benefit firms more heavily invested in US production. But they could also prove to be inflationary, ignite trade wars and batter Europe’s export-dependent issuers.

Even if US tariffs trigger retaliatory measures, it’s not clear whether the rest of world will fully embrace Trump’s brand of protectionism. Policy divergence between the US and Europe, along with a wide range of possible outcomes, could fuel yield volatility and return dispersion. In our view, this makes assessing relative value and security selection especially important.