Navigating Market Volatility Amid Trade Tensions

SANJAC ALPHA’S QUICK TAKE

Navigating Market Volatility Amid Trade Tensions

Market Overview - April 14, 2025

The first weeks of April brought heightened market turbulence, driven largely by intensifying tariff discussions and shifts in Treasury supply expectations. Both bond and equity markets responded sharply, underscoring the challenges investors face in an environment of rapidly changing macroeconomic signals.

One of the most striking developments was the surge in 10-year Treasury yields, which moved from 3.94% to 4.45% in just two days—a spike that rivaled volatility seen during the Global Financial Crisis and the early COVID period. The MOVE Index, which tracks Treasury market volatility, remains elevated and highlights the difficulty in hedging risk under current conditions.

4/10/2025 Source: Bloomberg

Treasury Supply Overhang and Curve Dynamics

Treasury issuance continues to exert pressure on the long end of the curve. With $9.2 trillion in debt maturing in 2025—70% of which comes due by June—the market is preparing for heavy supply in longer-dated maturities.

Policymakers have signaled interest in extending the average maturity of debt, adding further pressure on the back end. This dynamic is expected to reinforce a steepening of the yield curve, especially between 2s and 10s.

4/10/2025 Source: Bloomberg

Despite the volatility, shorter-duration Treasuries (particularly in the 1–3 year range) continue to offer compelling yields without excessive interest rate risk. These short maturity treasuries may benefit from further support as investors rebalance from equities into fixed income.

Credit Markets React to Policy Uncertainty

Credit spreads have widened in response to tariff uncertainty, with high-yield (HY) segments showing the largest moves. However, spreads remain within long-term historical norms, and much of the widening reflects a normalization from historically tight levels. Investment-grade (IG) credit, particularly in the lower tier of IG,

continues to offer attractive yield for risk, especially since “fallen angel risk” or bonds that move from BBB to BB+ is priced into the yield.

Equity Market Sentiment Shifting

Investor optimism has moderated meaningfully since the start of the year, as coming into 2025 the Conference Board survey showed 60% of investors expected significant gains in stocks in 2025. Expectations have changed. Ongoing macro pressures—including trade policy, inflation dynamics, and monetary uncertainty—have tempered sentiment.

We note that while index-based investing has dominated flows over the past decade, it is essential to remember that ETFs like SPY and QQQ are not monolithic instruments. Underlying sector exposure (e.g., energy’s link to crude prices or tech’s sensitivity to inflation and trade risk) introduces variability that may not be fully captured by passive allocations.

Active Management Regaining Traction

Volatility is likely to remain elevated as markets digest mixed economic data and fiscal headlines. In this environment, we anticipate renewed interest in active management strategies, particularly in fixed income. Actively managed bond ETFs have outperformed their passive counterparts in periods of elevated volatility at a rate far superior to actively managed equity ETFs, offering more options to navigate rate risk, credit differentiation, and curve positioning.

Percent of actively managed fund share classes beating benchmark (after expenses)

Data as of September 30, 2024. Considers share classes of each actively managed fund within each respective Morningstar Category. Share classes of funds with less than $50M in net assets were excluded from the analysis. May include some degree of survivorship bias, in that closed and merged funds existing for partial periods are not included. Past performance is no guarantee of future results. All indices are unmanaged. It is not possible to invest directly in an index. Source: Morningstar, Fidelity Investments.

IMPORTANT INFORMATION

These market observations are the views of SanJac Alpha as of November 27, 2024, and we undertake no obligation to update these observations. Our views are shared for information purposes only, and should not be considered, or relied upon as, financial advice. SanJac Alpha accepts no responsibility for any loss arising from the use of any information contained herein, and investors should consider their own personal circumstances and, as appropriate, seek professional advice for any investment decisions.

All investing involves risk, including loss of principal.

SanJac Alpha offers two exchange traded funds. The funds’ investment objectives, risks, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company. Please read it carefully before investing. A copy of the prospectus can be found by visiting www.sanjacalpha.com or by calling 1-800-617-0004.

The SanJac Alpha exchange traded funds are distributed by Quasar Distributors, LLC.

SANJAC ALPHA | 800.617.004 | sanjacalpha.com