This report provides a detailed analysis of the Thornburg Strategic Income Fund's performance during the third quarter of 2025, offering insights into market dynamics and key economic factors that influenced its returns.
Navigating Volatility: A Strategic Approach to Fixed Income in a Changing Economic Landscape
Third Quarter 2025: Fund Performance and Market Context
During the third quarter of 2025, the Thornburg Strategic Income Fund's I share class recorded a return of 2.02%. This performance positioned it slightly behind its benchmark, the Bloomberg U.S. Universal Index, by a margin of 11 basis points. The quarter was characterized by a complex interplay of global trade developments and shifts in interest rate expectations.
Global Trade Dynamics and Their Influence on Markets
Despite a substantial increase in effective tariff rates, which had risen sevenfold since the start of the year, financial markets demonstrated unexpected resilience. This stability was partly attributed to strategic measures taken to alleviate trade tensions. Reciprocal tariff arrangements, a 90-day delay on previously announced tariffs against China, and the negotiation of new bilateral trade agreements collectively contributed to mitigating some of the trade-related uncertainties that could have otherwise negatively impacted market sentiment.
Interest Rate Movements and Investor Expectations
The period also saw considerable volatility in Treasury yields. Notably, short-term Treasury yields experienced a significant decline, dropping approximately 30 to 40 basis points. This downward movement was primarily driven by growing anticipation among investors and analysts for future interest rate reductions by central banks. Such expectations typically arise from concerns about economic growth or inflation, prompting a re-evaluation of fixed income asset valuations.
Analyzing the Economic Backdrop of the Quarter
The economic environment of Q3 2025 was marked by conflicting signals: strong corporate earnings and employment figures suggested underlying economic strength, while trade disputes and their potential for escalation presented headwinds. The fund's performance reflects its strategic allocation across various fixed income sectors, aiming to capture opportunities while managing risks stemming from these macroeconomic factors. The relative stability observed in broader markets, despite rising protectionist measures, underscores the adaptive capacity of global economies and policy responses designed to buffer adverse impacts.
