June 2025 Commentary
Market Overview
In June, economic uncertainty dominated the landscape, as market participants remained apprehensive about impending tariffs set to take effect on July 9, 2025, ongoing congressional deliberations of the Tax Cuts and Jobs Act and the U.S. Federal Reserve’s anticipated decision on interest rates. The ISM Services PMI was 50.8% in June, and the report stated that the services sector grew in June after one month of contraction. The Bureau of Labor Statistics released the non-farm payroll employment with a figure of 147,000 jobs added and the unemployment rate at 4.1%. Despite these seemingly positive numbers, the long-term unemployment rate increased by 190,000 to 1.6 million, showing a shifting dynamic in the labor force. The Federal Reserve decided to not change its interest rate, citing a strong labor force coupled with a slightly elevated inflation rate.
In Europe, the ECB lowered the key interest rate by 25 bps to 2.00%, citing a strong quarter but foreseeing a slowdown for the rest of the year, with a GDP average growth of 0.9% in 2025. In contrast, Brazil raised its interest rate (Selic overnight rate) to 15%, the highest in 20 years, citing a high inflation risk and a booming sector economy. At the same time, Banxico cut interest rates to 8%, the lowest in three years.
The HSBC India Manufacturing PMI rose to a 14-month high of 58.4 in June, due to increases in production and sales volume, as well as new orders and a rise in exports.
In June 2025, all iBoxx USD Emerging Markets indices were positive, signaling robust performance across the board. The Overall benchmark was up 1.77%, reflecting a substantial increase of 115 bps from May. Within Sovg & Sub-Sovg, the Liquid Sovg & Sub-Sovg index was up 2.29%, an increase of 149 bps over the prior month. Notably, the Sovg and Sub-Sovg HY segment emerged as the standout performer, gaining 2.45% in line with its one-year return. Corporates HY outpaced Corporates by 35 bps, yielding 1.82% in June, while Corporates IG slightly underperformed at 1.29%. Overall, all indices are poised to either meet or exceed their one-year returns (please see the Appendix at the end of this document for the abbreviated index names).
Yields across the top 10 markets decreased compared to last month, with Mexico down 37 bps at 7.06% and Türkiye down 34 bps at 7.31% being the most pronounced. At the half-year mark, the top 10 markets are all positive YTD, with Mexico at 6.48%, Brazil at 4.71% and Chile at 4.71%. The combination of lower yields and robust returns in these economies underscores the market’s growing willingness to diversify strategies by incorporating emerging markets.
