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For the first quarter of 2024 the LOM Fixed Income Fund gained 1.16% as our individual securities held up better than the broader market which struggled in Q1. Over the past year, the Fund provided a total return of 5.38% compared to the benchmark return of 3.24%.
In February, the International Monetary Fund (IMF) raised its outlook for global economic growth, with increases for both the US and China while the Eurozone is expected to slow to growth of just 0.9% this year. The UN financial agency cited inflation easing more quickly than expected and has suggested that a ‘soft-landing’ may be in sight. The IMF is now forecasting global growth of 3.1% in 2024, up two-tenths of a percentage point from its October forecast. It expects unchanged growth next year, at 3.2%.
In the first quarter of 2024, the US Treasury yield curve, though still inverted, showed signs of flattening as markets have begun to anticipate rates staying higher for longer. Treasury yields moved higher on those issues maturing three months and longer, with the move more notable on the 3-year term, which increased by 40 basis points. The 10-year Treasury yield has improved from 3.9% to 4.2%. Risk premium for investment grade bonds ended the quarter the tightest in two years.
The Federal Open Market Committee (FOMC) voted unanimously for no rate changes at both the February and March meetings, maintaining the Fed Funds target rate at a range of 5.25% to 5.5%. Policymakers have emphasized their intention not to rush rate cuts until they see further evidence of inflation stabilizing. According to the FOMC dot plot, which is a survey of policymakers’ rate projections, most FOMC members predict a total of 75 basis points of rate cuts this year. Given strong economic data, investors have re-adjusted rate expectations for 2024. After diverging from the Fed’s forecast for a while, The Fed funds future market is now predicting a similar rate path as the central bank.
In this environment, we continue to focus on short to medium term investment grade bonds which we find attractive on an issue specific basis. We also continue to hold and opportunistically trade some hybrid securities paying up to 7% 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.
