Fixed income markets were volatile in March, with rising yields driving negative returns across most regions.
Government bond yields increased, particularly at the short end of the curve, as markets priced in the risk that energy‑driven inflation could delay interest‑rate cuts or even prompt a more restrictive stance from central banks. The US Federal Reserve kept the federal funds rate on hold at 3.50–3.75%, signalling that further progress on inflation would be required before considering policy easing.
European government bonds underperformed US Treasuries, reflecting concerns about the region’s sensitivity to higher energy prices. UK gilts were among the weakest performers, with the Bank of England adopting a more hawkish tone and all nine MPC members voting to keep rates at 3.75%.
Toward the end of the month, yields retraced slightly as investor focus began to shift from inflation risks to concerns about economic growth, although this was not enough to offset earlier losses.
Credit markets proved more resilient. US investment‑grade credit performed broadly in line with government bonds, while European credit markets underperformed. High‑yield bonds followed a similar pattern, with US markets holding up better, partly due to their exposure to the energy sector.
