Medium-Term Corporates Lead US Bond Market in 2025 | Bonds & Fixed Income

As reported yesterday at CapitalSpectator.com, the bond market is displaying a degree of resiliency regardless of tariff-related inflation risk. Leading the resiliency this 12 months: medium-term company bonds, primarily based on a set of ETFs monitoring numerous varieties of US fixed income securities by Tuesday’s close (July 22).

Vanguard Intermediate Corporate Bond ETF (NASDAQ:) is that this 12 months’s prime performer with a 5.4% year-to-date advance. That 2025 increase is simply barely forward of the second-best bond market performer this 12 months: inflation-indexed Treasuries (TIP).

Notably, all the main bond sectors are posting good points to this point this 12 months. The weakest performer: long-term Treasuries () with a 1.2% year-to-date rise.

What accounts for the runup in bond costs this 12 months? One narrative is that Wall Street’s fears are fading that Trump’s tariffs will spawn materially larger inflation.

Yet some evaluation means that it’s untimely to wave the all-clear flag. The Yale Budget Lab this week, for example, writes: “Current Tariff Rate: Consumers face an overall average effective tariff rate of 20.6%, the highest since 1910. After consumption shifts, the average tariff rate will be 19.7%, the highest since 1933.”

The implication: Higher is coming, even when the consequences have but to show up in the official statistics.

“We’re seeing the opening stages of these tariff effects taking place,” says Jason Miller, a professor of provide chain management at Michigan State University.

Higher inflation, of course, can be a headwind for bonds by decreasing the after-inflation worth of a fixed payout charge, a risk that’s being discounted in the meanwhile.

A potential counterpoint to the view that the bond market is shrugging off tariff inflation risk is the rally in inflation-indexed Treasuries. As the second-strongest performer this 12 months for bonds, the iShares TIPS Bond ETF (NYSE:) means that complacency about tariff inflation could also be misplaced after all.

“Inflation still hasn’t been impacted by these tariffs, which has surprised a lot of people,” notes Neel Mukherjee, chief investment officer at TIAA Wealth Management. “But the Fed is focused on inflation because they’re worried about goods inflation. And that will accelerate.”

For the second, inflation-indexed Treasuries agree that it’s too quickly to dismiss inflation risk as yesterday’s news.

Keep in thoughts that there’s one other issue that will help bond costs: issues of financial slowdown. Perhaps expectations that softer growth (or worse?) is the larger risk vs. inflation, in which case demand is rising for safe-haven bonds.

In flip, some analysts see stagflation brewing — slower growth and better inflation, which might clarify why bonds writ massive and inflation-indexed Treasuries are rallying on the similar time. Michael Hicks, professor of economics at Ball (NYSE:) State University, explains:

“In the two months of data since Trump’s Liberation Day tariffs were announced, the United States has lost 14,000 factory jobs. The slowdown in the economy this year follows a pattern that is nearly a precise example of what economic explanations of tariffs have predicted for a half-century. The price increases due to tariffs are not technically inflation. Economists have a name for rising prices during a weak economy: stagflation. It’s what made the 1970s so miserable.”