Baillie Gifford's Global Head of Credit and Fixed Income, Co-Head of Leveraged Finance Steven Oh, has published the Fixed Income Outlook for 2025. Steven Oh predicts that stimulative fiscal policies will exacerbate short-term inflation pressures, leading the Federal Reserve to reduce the extent of loose monetary policy and keeping yield curve at recent high levels, expecting this "distorted" curve to persist until 2025. In contrast, due to weak economic outlook in Europe, the European Central Bank will likely continue to lower interest rates. The US dollar may strengthen further. Baillie Gifford's base scenario forecast is entering an unusual non-recessionary rate cutting cycle, which will support the credit market performance in 2025, particularly in leveraged finance assets. With the Republican landslide victory in the US election, more growth-promoting policies are expected to be implemented, further supporting risk assets fundamentally. However, more restrictive trade policies may bring resistance to regions outside the US. While fundamental factors are favorable, Baillie Gifford believes they are offset by overvaluation, reflecting an overly optimistic market sentiment. Therefore, Baillie Gifford suggests adopting a balanced strategy in portfolio risk allocation, maintaining a closer to benchmark neutral position, and focusing on selected securities to capture different prospects among issuers. Steven Oh forecasts that high yield bond default rates have peaked in this cycle and are expected to decline, while leveraged loan default rates (including debt management operations) are projected to remain near historical average levels. With high total yield rates, strong demand for Collateralized Loan Obligations (CLOs) supports loan demand and market technical aspects. In terms of investment grade credit and rates, Baillie Gifford expects any short-term weakness to create buying opportunities. Relative to investment grade credit, the bank favors the valuation of mortgage-backed securities. While emerging market bonds can be used as a diversification tool, their valuation is not particularly cheap. Under the upcoming "America First" policy, emerging markets (especially Mexico), and even Europe may face trade policy challenges, but resulting sell-offs may present buying opportunities for credit assets in nearby regions, such as broader Asian investment-grade or high-yield bonds, as well as more extensive emerging market investment-grade bonds compared to developed markets.