The DoubleLine Fixed Income Briefing for the second quarter of 2025 highlights broad positive performance across fixed income markets despite macroeconomic volatility. Returns were primarily driven by the current high-carry environment and further spread tightening for most sectors. Yield levels remained elevated relative to recent history.
The Treasury curve steepened, as front-end yields came down while back-end yields rose amid economic weakness and the passage of the One Big Beautiful Bill. Agency mortgage-backed securities (MBS) continued to outperform Treasuries, despite modest spread widening on current-coupon Agency MBS. Corporate credit posted positive returns and outperformed Treasuries, with the investment grade, high yield, and bank loan sectors experiencing spread compression over the period.
Non-Agency residential MBS continued to ride its resilient fundamentals, supported by rising home prices and low defaults. Non-Agency commercial MBS also performed well despite the increased investor caution around heightened policy and economic uncertainty. Asset-backed securities (ABS) marked strong demand and positive returns, with caution noted around rising subprime and student loan delinquencies. Collateralized loan obligations (CLO) posted positive returns despite widening spreads with loan default rates starting to rise, though still well below long-term averages.
Global government bonds experienced positive returns amid a weakening U.S. dollar. Emerging markets fixed income returns were positive, with sovereign bonds outperforming corporate bonds.
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