March 2025 Commentary
Market Overview
March was a turbulent month, characterized by economic instability driven by possible tariffs, a weakening dollar and volatility in the equity markets. The S&P 500® declined 5.75%, while the U.S. dollar, as measured by the S&P U.S. Dollar Futures Index, fell 3.36%. Typically, there is an inverse relationship between the two, as the only periods where both fell were in 1998, 2002 and first half of 2008. The Atlanta Fed GDP Now estimate for Q1 2025 dropped to -3.7% from the initial evaluation of -2.8% at the end of February. The 10-year treasury yield, as measured by iBoxx USD Treasuries Current 10 Year, also fell in March, to 4.21%. On a positive note, U.S. employers added 228,000 jobs, above market expectations.
Euro area inflation was projected to decline to 2.2% in March, while unemployment for February came in at 6.1%, down 0.1% compared to January. A recent projection by the Conference Board anticipated Euro area growth of 0.2% in the first quarter of 2025, followed by an increase of 0.3% in the second half of the year, resulting in a total growth of 0.9% for the region in 2025. In Latin America, Banco de México lowered its interest rate by 50 bps to 9%, partly to counter the domestic impact of tariffs imposed by the U.S., while GDP growth for Mexico was also revised down to 0.6% for 2025. In Asia, the HSBC India Manufacturing PMI rose to 58.1, citing higher sales, while the S&P Global ASEAN Manufacturing PMI fell to 50.8 in March (from 51.5 in February), which was attributed to lower output and new orders.
Emerging markets experienced mixed returns in March, shaped by volatility and tariff uncertainty. The Overall benchmark had a -0.07% return. High yield indices faced challenges this month; the Overall HY returned -0.38%, while the Sovg & Sub-Sovg HY fell by -0.74%. The Corporates HY return was relatively unchanged, returning 0.02%, while the Corporates IG inched higher at 0.29%. The Liquid Sovg & Sub-Sovg index underperformed its Sovg & Sub-Sovg benchmark by 15 bps, returning -0.48%. The Overall IG returned 0.09%, partially influenced by the Corporates IG, which returned 0.29% (please refer to the Appendix at the end of this document for the abbreviated index names).
Compared to February, yields on the top 10 economies were mixed. Türkiye and Indonesia saw yields rise by 40 and 21 bps, respectively, while the UAE was the only market with a marginal decline of 2 bps in yield. All top 10 emerging market economies had a drop in monthly returns; Indonesia experienced the highest drop of 279 bps and a monthly return of -0.98%, while Mexico fell 244 bps to -0.04%. At the end of Q1, 2025, the highest year-to-date returns were experienced by: Brazil at 3.61%, Mexico at 3%, and Saudi Arabia at 2.72%.
