Monthly Market Monitor

March 2025

Macro

Fiscal policy initiatives have become one of the primary drivers of market volatility in recent weeks as uncertainty over potential changes to trade policies has moderated risk appetites.

Economic data and consumer confidence surveys trended softer in February, while inflation continues to show little evidence that it will resume a sustainable path toward the Federal Reserve's (Fed's) 2% objective.

Market pricing for Fed rate cuts drifted higher in early March; almost 75 basis points (bps) of cuts are currently discounted for the balance of 2025.

Credit

After a slow start, primary markets were active in the latter half of the month, with approximately $160 billion in new issuance.

New supply in February was primarily driven by non-financial issuers as many high-quality industrial companies took advantage of narrow risk premiums.

While stable for most of the month, credit spreads moved higher during the last few trading days of February as tariff angst intensified. Investment-grade bond spreads closed the month at 83 bps, which, while low on a historical basis, is the highest level since October 2024.

Structured

Asset-backed security (ABS) spreads were modestly wider during the month; issuance slowed given there were no new deals during the last week of February.

The mortgage-backed securities (MBS) sector continued recent favorable trends, posting positive excess returns for the second consecutive month.

Chart of the Month

University of Michigan 1-year Inflation Expectations, (%)

1-year inflation expectations from 2020 - 2025. Near-term inflation expectations have risen significantly in recent months.

Near-term inflation expectations have risen significantly in recent months due to concerns about tariff policies.
Breakeven rates on shorter-dated Treasury inflation-protected securities have also increased, with the 2-year breakeven rate exceeding 3% for the first time since first quarter 2023.

As of 2/28/25. Source: Bloomberg L.P.

Market Data

Yields	YTM %	MTD Change	QTD Change	YTD Change
3-Mo UST	4.30	0.01	-0.02	-0.02
2-Yr UST	3.99	-0.21	-0.25	-0.25
5-Yr UST	4.02	-0.31	-0.36	-0.36
10-Yr UST	4.21	-0.33	-0.36	-0.36
30-Yr UST	4.49	-0.30	-0.29	-0.29

Risk Premia	OAS (bps)	MTD Change	QTD Change	YTD Change
Investment Grade Credit	83	8	6	6
Asset-Backed Securities	50	3	6	6
High Yield	280	19	-7	-7

As of 2/28/2025. Source: Bloomberg L.P.

Bloomberg Sector/Index Performance (USD)

	Duration (yrs.)	MTD Excess Return (%)	YTD Excess Return (%)	MTD Total Return (%)	YTD Total Return (%)
Sector
Investment Grade Credit	6.67	-0.49	-0.36	2.03	2.61
Mortgage-Backed Securities	5.85	0.16	0.20	2.55	3.07
Asset-Backed Securities	2.59	-0.04	-0.10	0.97	1.30
High Yield	2.88	-0.52	0.41	0.67	2.05

	Duration (yrs.)	MTD Excess Return (%)	YTD Excess Return (%)	MTD Total Return (%)	YTD Total Return (%)
Index
1-3-Yr Government Credit	1.76	0.00	0.04	0.70	1.16
Intermediate Government/Credit	3.66	-0.07	-0.01	1.39	1.97
U.S. Aggregate	6.02	-0.10	-0.05	2.20	2.74

As of 2/28/2025. Source: Bloomberg L.P.

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