U.S., U.K. Junk Bond Markets Rally Amid Fed Rate Cut Expectations

The U.S. junk bond market is rallying strongly in 2025, marked by plummeting yields and tightening credit spreads, driven by investor optimism over anticipated Federal Reserve interest rate cuts starting as early as September 2025. This bullish sentiment has fueled increased issuance, with major banks like JPMorgan Chase forecasting a significant rise in junk bond supply, although analysts caution about ongoing high default rates and credit downgrades. Financial stocks stand to benefit from the Fed's expected rate cuts, as a steepening yield curve improves bank profitability by widening lending margins, while deregulation and industry evolution add further support, according to strategist Lauren Goodwin. Stocks of major financial institutions such as Citigroup, Morgan Stanley, and Goldman Sachs are already near 52-week highs amid these favorable conditions. Jim Cramer highlights optimism around the Fed cuts, recommending stocks like Home Depot due to expected rate declines and related commodity price drops, signaling broad market opportunities. Meanwhile, Malaysia's banking sector also shows a positive outlook for the second half of 2025, with higher dividend yields offsetting net interest margin compression and expected liquidity supporting loan growth, although some caution remains about potential loan growth disappointments.