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Over the third quarter of 2025 the LOM Fixed Income Fund rose 2.09% as most bonds were better bid on rate cut hopes through the balance of this year and on into 2026. Over the past year, the Fund provided a total return of 4.19%.
In fixed income markets, the Federal Reserve cut rates at the end of the quarter as broadly anticipated and signaled an additional 50 basis points of easing through the remainder of the year. The central bank’s focus, as articulated by Chairman Powell, has shifted more squarely toward the rising unemployment rate in the U.S., even as inflation remains contained just under 3, still above target but well off its previous highs. This evolving policy stance has reinforced expectations of a more accommodative environment, particularly given that growth indicators remain mixed and labor market softening is drawing greater attention.
The prospect of further cuts drove yields lower across the curve, with the 20-year and 30-year maturities slipping below 4.5%. Credit spreads also continued to compress, closing near 1% for investment-grade bonds versus the 10-year Treasury. This resilience in corporate credit reflects both the extended period of supportive macroeconomic conditions and the limited balance sheet damage from the latest tariff regime. Optimism around funding costs has fueled near-record borrowing volumes in the first half of 2025, particularly among companies positioned to capitalize on the AI-driven investment cycle. This pattern has carried into the second half, highlighted by Oracle’s announcement of an $18 billion capital raise to finance its AI cloud expansion, underscoring how technology-linked issuers remain at the forefront of issuance activity.
Outside the U.S., market dynamics have been more fragmented and tied to domestic fundamentals. In Europe, French and German 10-year bond spreads widened back to levels last seen in January, driven by renewed political uncertainty following the French Prime Minister’s failed confidence vote. The U.K., after cutting rates in August, is not expected to ease further until early 2026. Economic headwinds and policy ambiguity have pushed the 30-year gilt yield above 5.5%, marking its highest level since 1998 and raising concerns about fiscal sustainability.
In this environment, we continue to invest selectively and opportunistically in investment grade bonds. We are also maintaining our approximately ten percent position in hybrid securities paying over 6% on a current yield basis.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
