In Q2 2025, global bond markets exhibited signs of significant credit tightening, marked by an accelerated compression of bond spreads across both investment-grade and high-yield sectors. This phenomenon was largely driven by central banks maintaining restrictive monetary policies despite easing inflation metrics, coupled with geopolitical uncertainty and risk-off sentiment in global markets.

At Buglocon, we observed that traditional credit models underestimated the repricing of sovereign risk, especially in emerging markets. Investors began to favor short-duration instruments with high-quality collateral, while corporate bonds with lower credit ratings experienced notable outflows. Additionally, the flattening of yield curves in the US and Europe introduced further volatility for bond ETFs and structured credit products.

Our strategic interpretation of these movements has centered on identifying asymmetric opportunities in compressed spreads—specifically within the energy transition and healthcare infrastructure bond segments. Our active fixed income strategies, powered by Buglocon’s AI macro filter, selectively rotated out of high-beta credit into defensive sovereign and municipal issues, generating alpha while mitigating drawdowns.