LOM Fixed Income Fund Manager’s Report Q1 2022

Over the first quarter of 2022, the LOM Fixed Income Fund USD declined by -5.28% as interest rates moved higher across the curve as investors feared higher inflation and an increasingly hawkish Fed. Bonds of all maturities and sectors declined during one of the largest fixed income routs in recent history. For example, the Bloomberg Aggregate Bond Index fell -6.16% during Q1.  

Despite the first quarter sell off, many of our holdings benefitted from steadily improving credit spreads and the strong relative performance of our hybrid securities. During the period, we added a notional $5 million in interest rate hedges to help protect against further interest rates rises.

In fixed income markets, the U.S. Treasury yield curve shifted upward during the first quarter, with changes more notable on medium-term securities. Credit spreads continued to widened until mid-March, amid concern of the economic impact from the hawkish Fed and geopolitical uncertainty. After the Ukrainian war appeared to be contained within the region, credit spreads tightened toward the end of the March.

As the markets widely anticipated, the FOMC committee increased its Fed Funds Target Rate by 25 basis points at both the January and March policy meetings. In late March, Fed president Jerome Powell indicated his willingness to raise rates more aggressively if policymakers deemed such actions appropriate. Following this comment, analysts increased the probability of a 50 basis point hike at the next FOMC meeting in May.

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