May 2025 Commentary
Market Overview
Global economic trends appear to be shifting toward a phase of deceleration, partially driven by fluctuating trade policies and tariff uncertainty. According to a report released by the OECD, U.S. economic growth is expected to slow to 1.6% in 2025 due to economic policy uncertainty, a slowdown in net immigration and reductions in the federal workforce. The ISM Manufacturing PMI experienced a decline of 0.2 percentage points, landing at 48.5, with demand indicators mixed and factory output declining, as companies were revising production and headcount. 10-Year U.S Treasury yields ended the month at 4.41%, up 14 bps from April.
Eurostat reported that the EU inflation rate for May came in at 1.9%, lower than expected and marking the lowest level in three years. In Eastern Europe, Poland led economic growth at 3.2% year-over-year in Q1 2025.
In Latin America, Brazil’s economy is expected to grow at 2.3% in 2025 amid tight monetary conditions, while inflation is expected to reach 5.2% according to a report released by the IMF. In Mexico, the Central Bank decided to cut interest rates by 50 bps, lowering the overnight rate to 8.50% to protect the country from trade tensions. The HSBC India Manufacturing PMI was 57.6, a three-month low, due to weak production expansion; renewed interest in the region’s manufacturing resources was noted in the report.
In May, all emerging market indices recorded positive returns, signaling a robust performance across the board. Notably, high yield (HY) benchmarks significantly outperformed their investment grade (IG) counterparts. The Overall HY was up 1.57%, surpassing the Overall index by 95 bps, while the Overall IG lagged with a modest return of 0.13%. The Liquid Sovg & Sub-Sovg index outperformed its benchmark by 13 bps, posting a return of 0.79% for the month. The highest returns were noted in the Sovg & Sub-Sovg HY index, which rose 1.79%, followed closely by Corporates HY at 1.33%. These high yield indices aligned well with their one-year return trajectories, reflecting a positive trend in investor sentiment. The lowest performers were the Investment Grade indices, with the Sovg & Sub-Sovg IG, at 0.06% (please see the Appendix at the end of this document for the abbreviated index names).
The top 10 markets posted mixed results in May. Yields for Mexico, Brazil and Indonesia were slightly down when compared to April. Top three highest yields in May were attributed to Mexico, Brazil and Türkiye. Monthly returns for May decreased slightly, with Qatar down 0.36%, a 43 bps decrease from last month. China’s performance was flat when compared to April.
