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Over the second quarter of 2021, the LOM Fixed Income Fund USD gained by +2.86% as intermediate and longer-term interest rates modestly declined while credit spreads continued to tighten during the period. This quarterly return compares favorably to the +0.13% increase in the FTSE USBIG Government/Corporate bond index, the Fund’s benchmark.
On a one-year basis, the Fund increased in value by 5.38% compared to a 0.52% increase in the benchmark as many of our holdings benefitted from steadily improving credit spreads and the strong relative performance of our hybrid securities.
In the fixed income markets, the U.S. Treasury yield curve flattened during the second quarter, driven mainly by longer-dated issues experiencing falling yields. After reaching a one-year peak at March month end, the ten-year Treasury yield has been on a downward trend, decreasing by about 30 basis points to 1.4% at the end of June. Meanwhile. the 30-year yield declined 40 basis points to 2%.
As global vaccination programs race against the more contagious delta variant, investors ponder the timeline to reach full employment. But on the whole, investors remain optimistic with credit spreads further tightening to pre-pandemic levels.
At both the April and the June FOMC meetings, policymakers unsurprisingly maintained the Fed Funds target rate at the zero to 25 basis points range. Fed Chair, Jerome Powell acknowledged that the latest inflation data is higher than expected, but he still thinks any recent spike in inflation will only be transitory. In June, some Federal Reserve officials expressed slightly hawkish tones for the first time since the recession. Based on the latest Fed dot plot, the median forecast now includes two rate hikes by the end of 2023.
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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.
