As we enter the second half of 2025, investors face a complex and evolving landscape shaped by shifting trade policies, inflationary pressures, and geopolitical uncertainty.

 

A Dr. Jekyll and Mr. Hyde Bond Market

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Within the fixed income markets, a tug-of-war has unfolded between two opposing forces, with budget deficits and increased debt loads weighing on Treasury prices, but potential economic weakness could drive yields lower (prices higher). Moreover, the Federal Reserve (Fed) is in a tough spot with inflationary pressures expected to remain above the Fed’s 2% target, so the central bank may need to be on hold until the economy shows actual signs of cooling, whenever that happens. But high-quality fixed income can still benefit portfolios in a volatile market with attractive income opportunities and potential price appreciation, even in a challenging yield environment. In the soon-to-be-released publication, we address the following fixed income questions:

• Why are Treasury yields expected to drift higher in 2025, and what could cause them to fall?

• How does America’s federal debt and deficit spending impact the bond market?

• What role do foreign investors play in the U.S. Treasury market?

• Why is the Treasury yield curve still considered flat, and what does it mean for investors?

• How can high-quality fixed income still benefit portfolios in a volatile market?

 

What to Expect from Commodity Markets

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Commodity markets slightly outperformed equity markets in the first half. The Bloomberg Roll Select Commodity Index (a version of the Bloomberg Commodity Index that aims to mitigate the cost of rolling over futures contracts as they expire) posted a total return of 6.4%, compared to the S&P 500 Total Return Index of 6.2%. A weaker dollar was credited for most of the gain as the greenback wrapped up the first half with a loss of over 10%. Despite the gain, the broader commodities complex faced a bumpy path, as global growth forecasts were significantly downgraded following the White House's announcement of reciprocal tariffs on April 2. In addition, interest rates remained volatile, and economic activity in China largely underwhelmed despite a steady stream of stimulus measures.

 

The outlook for commodity markets in the second half of 2025 is likely to hinge on trade policy developments, which will help shape global growth and commodity performance. Long-term growth drivers, including the green energy transition and data center demand, remain intact, but China’s economic recovery is a critical uncertainty, with a trade deal needed to boost rebound prospects. We expect precious metals to continue outperforming, while cyclically sensitive metals, such as copper, are gaining momentum. In energy, oil faces challenges from rising OPEC+ supply and weakening global demand.

 

In the soon-to-be-released publication, we address the following commodity market questions:

• What factors have counterbalanced the potential benefits of a weaker dollar for commodity markets in the first half of 2025?

• Why has gold performed strongly compared to other commodities, and what are the key drivers behind its rally?

• How have trade policies and economic conditions in China impacted industrial metals and the broader commodity market?

• What challenges are oil markets facing, and what would be required for a potential reversal in oil price trends?

 

Bottom Line

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The second half of 2025 will call for a steady hand. Investors who stay diversified, patient, and opportunistic will be best positioned to navigate the volatility and capture potential upside as policy clarity gradually returns. For much more on how LPL Research is thinking about the second half for the fixed income and commodity markets, check out the LPL Research Midyear Outlook 2025 publication, arriving on July 8, 2025.

 

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• Bonds are subject to market and interest rate risk if sold prior to maturity.
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