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CONTRIBUTORS

Christy Tan

Investment Strategist
Franklin Templeton Institute

Lukasz Labedzki, CFA

Senior Analyst
Franklin Templeton Institute

Priya Thakur, CFA

Analyst
Franklin Templeton Institute

You can’t change the wind, but you can adjust the sails to reach your destination.”
—Paulo Coelho, Brazilian lyricist and novelist.

As markets turn jittery in response to escalating tariffs and tit-for-tat retaliation between the world’s two largest economies, investors are once again reminded that geopolitics can shift the investment landscape as swiftly as any central bank. With term premiums on the rise and the US rate-cutting cycle set to proceed at a more cautious pace than previously expected, now is the time to rethink how portfolios are positioned for the next phase of the fixed income cycle.

In this paper, the Franklin Templeton Institute offers a clear framework to help investors reassess risk and return across fixed income markets—highlighting opportunities from short-dated US Treasuries to investment-grade corporate credit and mortgage-backed securities. The winds may be changing but, with the right strategy, there are still steady hands on the wheel.

In this paper, we explore:

1. Why short- to intermediate-duration bonds may shine even as the rate-cutting cycle unfolds more slowly than expected.

2. How a rising term premium could disrupt long-duration bets and what to watch for as investors demand higher compensation for uncertainty.

3. Which segments of emerging market debt remain resilient despite headwinds from geopolitics and trade policy—offering selective, rather than structural, opportunities.

Download the full paper to uncover the key regions and fixed income segments that may offer the best positioning in 2025.

Looking to hear directly from the experts? We invite you to tune in to our latest podcast series, where our portfolio managers share their views across a range of active strategies—from ultra-short bond solutions and high-quality corporates, to high yield and dynamic plays across global markets.

Each voice brings a distinctive perspective on how to stay nimble in today’s volatile environment.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

Equity securities are subject to price fluctuation and possible loss of principal.

Special risks are associated with investing in foreign securities, including risks associated with political and economic developments, trading practices, availability of information, limited markets and currency exchange rate fluctuations and policies; investments in emerging markets involve heightened risks related to the same factors. Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments.

China may be subject to considerable degrees of economic, political and social instability. Investments in securities of Chinese issuers involve risks that are specific to China, including certain legal, regulatory, political and economic risks. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.

Important data provider notices and terms are available at www.franklintempletondatasources.com.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

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