The year began with stronger-than-expected U.S. economic growth, fuelled by robust consumer spending and a resilient labour market. As a result, U.S. risk assets outperformed relative to other economies and the U.S. dollar strengthened, particularly during the U.S. election period in the fourth quarter.
As inflation moderated across major economies, central banks aimed for a “soft landing”. The Federal Reserve implemented its first 50 basis point rate cut in September, followed by a more cautious 25 basis point reduction, while European central banks continued to lower policy rates. Notably, the Bank of Japan diverged by transitioning toward policy normalisation, raising rates from zero to 25 basis points. Despite these rate cuts, persistent inflation, robust U.S. economic growth, and increasing fiscal concerns pushed long-term yields upward. As a result, the yield curve steepened, leading to a mixed performance in core fixed income markets.
In contrast, credit markets showed resilience, bolstered by low default rates, solid fundamentals, and reduced core interest rates. Credit spreads narrowed to levels not seen since before the global financial crisis, with subordinated debt and high-yield bonds delivering stronger returns than investment-grade credit.
Emerging market fixed income delivered mixed results in 2024. While some countries benefited from easing global inflation and China’s stimulus initiatives, others struggled with local currency depreciation, fiscal strain, and geopolitical uncertainties. Hard currency sovereign debt remained volatile due to rising U.S. yields, whereas investment-grade emerging market issuers benefited from strong external buffers and sustained demand for high-yielding assets. Notably, China’s government bonds delivered record returns as the People's Bank of China shifted to a moderately accommodative monetary policy to counter sluggish growth and near-zero inflation.
Looking ahead, the new U.S. administration is expected to have profound implications for policies in numerous key areas, which will in turn influence global growth, inflation, and interest rates. The global macroeconomic landscape will also continue to be shaped in 2025 and beyond by other countries’ responses to the U.S. government’s economic and trade policies, advancements in AIdriven productivity, and ongoing geopolitical shifts.
Against this backdrop, ADIA's Fixed Income Department remains committed to its core strategy of generating alpha by managing a liquid fixed income portfolio with an absolute return target above the risk-free rate. The Department utilises both internally and externally managed strategies to achieve diversified returns, maintaining its focus on effective portfolio and risk management.
