LOM Fixed Income Fund Manager’s Report Q2 2022

Over the second quarter of 2022, the LOM Fixed Income Fund USD declined by -5.35% with interest rates moving higher across the curve and credit spreads dramatically widening as investors began to fear a recession. Bonds of all maturities and sectors declined in a continuation of one of the largest fixed
income routes in recent history. For example, the Bloomberg Aggregate BondIndex fell -3.86% during Q1.

Historically, bonds have been a safe place to hide and protect principal during market downturns but not this time around. Over the first half of 2022, the Bloomberg U.S. Aggregate Bond Index fell 10.35% as interest rates rose.

The Treasury yield curve had a parallel upward shift during the second quarter in response to an increasingly hawkish central bank. Credit spreads widened further amid concerns of persistently high inflation and higher probability of a recession. The spread between US BBB Corporate and the 10-year Treasury ended last quarter at 2.13%, the highest in the past two years.

In May, the FOMC committee had their third 0.25% rate hike this year. After the May CPI surprisingly reached a 40-year high, policymakers decided to act more aggressively by raising the Fed Fund Target Rate by 0.75% at the June meeting, the largest increase since 1994. Fed Chair, Powell once again reiterated their focus to bring inflation back to the target of two percent. Markets widely interpreted the Fed’s message as a signal that more 0.5% rate hikes will take place at future meetings.

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