Looking Back: What We Said Last Year
In the ICAI Singapore Chapter Namaskar H1 2024, we discussed the paradigm shift from over a decade of artificially ultra-low interest rates to the fastest rate hike in 236 years. Creating an ideal environment for investing in bonds. We explored the relationship between interest rates and inflation, and how fixed income is becoming an increasingly attractive investment avenue. We also emphasised the proactive steps Chartered Accountants must take to avoid the 'cash trap' and enhance treasury returns.
Our message was clear: bonds offer stability, income, and strong risk-adjusted returns, even in uncertain times. The current, heightened uncertainty has only added to their appeal. This is evident from the performance of various bond funds: Silverdale Funds delivered returns of 13% to 24% in CY2024 and have appreciated a further 4% to 6% year-to-date in 2025.
In this article, we build on that foundation by first reviewing the evolving macroeconomic landscape, then revisiting our key propositions, and finally concluding with actionable insights to generate superior risk-adjusted returns—both at an individual level and within corporate treasury operations.
In an environment marked by persistent macroeconomic uncertainty, fixed income continues to stand out as a compelling investment avenue
Why understanding US policies is critical for global investors
The global debt market, estimated at US$315 trillion , remains anchored by the US Dollar, which dominates 60% of global debt issuance and 70% of corporate bond issuances . The US dollar also accounts for 89% of all foreign currency trades, 58% of global foreign exchange reserves, and nearly half of SWIFT payments and cross-border loans. This dominance offers unparalleled liquidity and depth across investment-grade, high-yield, and emerging market credits—making the US Dollar a cornerstone of global portfolios. As a result, understanding US monetary and fiscal policies is essential for global investing.
US policy shifts under Trump: spotlight on deficits, tariffs, regulation, and immigration
The global debt market, estimated at US$315 trillion , remains anchored by the US Dollar, which dominates 60% of global debt issuance and 70% of corporate bond issuances . The US dollar also accounts for 89% of all foreign currency trades, 58% of global foreign exchange reserves, and nearly half of SWIFT payments and cross-border loans. This dominance offers unparalleled liquidity and depth across investment-grade, high-yield, and emerging market credits—making the US Dollar a cornerstone of global portfolios. As a result, understanding US monetary and fiscal policies is essential for global investing.
The year 2025 has marked a significant shift in the world order. The world’s largest economy and global trendsetter, the United States, increased tariffs by over 1000%—from 2.3% to more than 24%—followed by rapid policy shifts that have resulted in current temporary tariffs of 13% , a level last seen in 1941. This has created immense uncertainty, marked by a volley of threats, negotiations, and reversals.
According to the Congressional Budget Office (CBO), these tariffs could generate approximately US$ 2.8 trillion in additional revenue over the next decade. At the same time, the United States has enacted One Big Beautiful Bill, providing for additional US$ 3.4 trillion in tax cuts and incentives. Together, these measures, when combined with the existing budget, point to a sustained fiscal deficit of nearly 6% over the next decade.
The full impact of these policies, particularly the tariff hikes and aggressive deportation-led labor disruptions, is yet to be fully felt. Early signals point toward rising inflation, potential supply chain re-fragmentation, and structurally wider fiscal gaps. These tectonic shifts have clouded the economic outlook, distorting both hard and soft data, resulting in excessive economic uncertainty.
Macroeconomic Snapshot
Headline inflation has eased meaningfully from a peak of 9.1% in June 2022 to 2.7% in June 2025. However, the second half of the year is expected to reflect upward pressure from the recently implemented tariff hikes.
Labor market remains balanced with unemployment rate at 4.1%, and layoffs near cyclical lows of circa 1% . However, changes in immigration policy may constrain labor supply, potentially pushing the unemployment rate lower.
GDP Growth for Q1 was -0.5% (annualized), largely due to front-loading of imports ahead of tariff implementation. Q2 GDP growth is estimated to be around 2.4% , driven by inventory normalization. The Federal Reserve has revised down its full-year 2025 growth forecast from 1.7% to 1.4%.
Fed Rates have been held unchanged through H1 2025, amid ongoing policy uncertainty. The FOMC continues to project a total of 50 bps in rate cuts for 2025, now anticipates only one 25 bps rate cut in 2026, down from the previously projected two cuts.
Corporate bond default rates remain at the bottom percentile of the past 25 years - near zero for both BBB and BB-rated issuers -reflecting continued balance sheet strength and still-accommodative financial conditions.
Uncertainty is not the same as risk
Policy uncertainty has contributed to heightened market volatility, while such conditions may persist, history shows that periods of dislocation often give rise to some of the most attractive investment opportunities.
Unlike equities, bonds offer defined maturity dates and contractual repayment of par value (barring defaults), making the starting yield a strong predictor of total return . Recent spread widening largely reflects increased risk aversion rather than a deterioration in underlying credit quality (see supra: Corporate Default Rates).
With bond yields currently in the top quartile of their 10-year range, the market presents a compelling opportunity to lock in elevated income. Additionally, moderate inflation tends to support corporate fundamentals, as nominal revenues outpace input costs. Such an environment often results in high dispersion in earnings, creating a perfect maelstrom for active management with an emphasis on bottom-up credit selection, prudent duration management, and agile portfolio positioning .
Leverage for superior risk-adjusted returns
As Chartered Accountants, it is important for us to recognise that leverage can reduce risk by enhancing diversification across larger number of instruments (bonds), sectors, and geographies. It allows for an improvement in portfolio quality by enabling investment in higher credit quality and shorter duration bonds, which typically carry lower risks still generate attractive post-leverage. However, leverage is not without its challenges. It is critical to match the tenures of loans and investments, and to ensure that loan and bond costs are effectively interlocked. For a high-quality bond portfolio, a leverage ratio of one to two times is generally considered prudent; anything beyond that should be left to experienced professionals.
Fixed tenure funds offer higher assurance
In the current environment of elevated volatility and high bond yields, Fixed Maturity Portfolios (FMPs) offer a compelling opportunity for investors seeking predictable income. FMPs function similarly to purchasing individual bonds, providing certainty of maturity date and earnings (i.e., coupons/dividends), but with the added benefit of diversification across multiple bonds rather than exposure to a single bond.
As per Bloomberg Systematic Strategies Report, August 2023, the probability of a 5-year fixed maturity portfolio meeting its target returns is very high at 91.5%.
In case of Silverdale Target Return Funds, the returns are further enhanced by using prudential leverage (see supra: Leverage for superior risk-adjusted returns)
Case Study:
In case of the Silverdale Fixed Maturity Fund 2025: it matured on 23rd May 2025 delivering target returns of 6% p.a. aggregating to +28% as against the indices which provided total returns of -10% to +4% for the same period, as follows:
Dollar returns in local currency
For local currency (SGD/INR/others) investors, given the breadth and depth of the US Dollar bond market, it may still make sense to invest in US Dollar bonds and swap into local currencies. (see supra: “Why understanding US policies is critical for global investors”). This allows investors to benefit from lower risk (due to diversification) and higher post-currency-swap returns.
For example, in an enhanced-returns 3-4 year fixed-tenure US Dollar bond fund, investors could potentially earn 8%-9% per annum in USD terms, around 6%-7% in SGD-hedged class, and about 10%-12% in INR-hedged class – representing returns that are two to three times higher than their respective risk-free treasury rates, as follows:
Executive Summary
The key takeaways for fellow Chartered Accountants are as follows:
The USD anchor to global portfolios
The USA and the US dollar remain epicentre of global markets. USD accounts for 60% of global bonds, 58% of global reserves, and nearly half of all cross-border payments – making USD investments cornerstone of constructing resilient and scalable portfolios.
Macroeconomics supporting bonds
Current environment provides a rare window to lock-in elevated and high income, given that the yields are in the top quartile of their historical range with low inflation, balanced labour market, marginally growing GDP, and bond defaults at 25-years bottom, with potential of interest rate cuts.
Use policy volatility to your advantage
Rapid policy shift (tariffs, deficits, immigration, deregulations, etc.) create high dispersion in earnings and market dislocations creating ideal conditions for active bond portfolio management. Spread widening today reflects caution, not credit stress: an opportunity for discerning investors.
Leverage and Currency Hedging can drive superior risk-adjusted returns
A prudently leveraged 3-to-4-year USD bond portfolio can yield 8%–9% p.a. Local currency hedged share class can offer two to three times the corresponding risk-free returns.
Bond yield is destiny – capture it using fixed maturity funds
While rate movements influence short-term returns, long-term performance is overwhelmingly determined by the starting yield. Current yields are elevated. Fixed Maturity Portfolios (FMPs) offer pre-defined returns by leaning on bonds’ pull-to-par upon maturity with portfolio diversification, and potential for enhanced returns through non-recourse leverage.
Executive Summary
With bond yields at historic highs and cascading macro uncertainty, bonds offer reliable income and enduring stability. They remain a timeless foundation for wealth preservation and growth. Hence, Bonds are Forever