Two months into 2025, and the fixed income picture appears noticeably uncertain. Entering the year, many market watchers touted a view that emphasized adding duration. 2025 has instead revisited the “higher for longer” theme, with the Fed signaling a stop to rate cuts. Much depends, of course, on the economy’s fate and possible government policy changes. However, that uncertainty may help make the case for active fixed income.
See more: The Active Fund Seeing Record-Breaking Performance
In a recent interview, T. Rowe Price fixed income strategist Brian McMullen shared his thoughts on the fixed income outlook in 2025 and the use of active fixed income. McMullen revisited active fixed income ETFs’ big breakout in 2020 as an important starting point for the current rising investor demand for the category.
Active Fixed Income in 2025
“March 2020 was such a pivotal point, in my opinion, of the growth and adoption across investor bases,” McMullen said. “Certainly, there are tax benefits, but I think it’s just the next evolution in the asset management industry.”
Looking at 2025, McMullen spoke to emphasize floating rate and shorter duration approaches. Where other firms have pointed to duration, McMullen underlined the “higher for longer” motif and Fed pause as important factors to consider.
“It’s kind of contrary, to be honest, to what basically every other asset manager or bond manager has been saying,” McMullen said. “Most of the messaging has been, ‘add duration, go buy core bonds, long duration…’ The reality is that’s just not where we are. Some of the worst performing segments of fixed income have been long treasuries, TLT.”
T. Rowe Price offers two active ETFs that line up with that view. The T. Rowe Price Floating Rate ETF (TFLR ) and the T. Rowe Price Ultra Short-Term Bond ETF (TBUX ) each present routes to invest for uncertainty. The active fixed income duo charge just 61 and 17 basis points, respectively.
TBUX actively invests in a portfolio of fixed income securities with an effective duration of 1.5 years or less. TFLR invests in U.S. dollar-denominated floating-rate loans, predominantly in high yield. Together, the duo presents a pair of options to benefit from active adaptability in an uncertain fixed income landscape.
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