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Over the first quarter of 2025 the LOM Fixed Income Fund rose 1.47% as investors sought safety amid rising tariff uncertainty. Over the past year, the Fund provided a total return of 4.74%.
The global economy experienced significant turbulence in Q1, primarily due to U.S. President Donald Trump’s implementation of extensive tariffs. These tariffs, announced as part of a “Liberation Day” initiative, targeted imports from numerous countries, aiming to reduce U.S. reliance on foreign goods. The broad scope of these measures sparked fears of a global trade war, leading to substantial declines in stock markets worldwide.
Economic uncertainty led to downward revisions in growth forecasts. The OECD projected that escalating U.S. tariffs would slow global economic growth and increase inflationary pressures. In the U.S. Federal Reserve Chair Jerome Powell announced a downward revision of U.S. GDP growth from 2.1% to 1.7%, signaling a slowdown in economic momentum. At the same time, the Fed raised its inflation forecast, reinforcing expectations of prolonged restrictive monetary policy to curb price pressures.
In fixed income markets, risk volatility created a compression along the Treasury curve, the 10-year yield fell from 4.58% to 4.20%, with roughly 40-basis-point tightening on any maturity over 2 years. The expectation entering the quarter was for under two federal fund rate cuts through the year as the market has increased the potential chance of second half economic slowdown due to tariff impacts. Now, this expectation has risen to three, resulting in an anticipated target range of 3.75% – 4.00% by the December meeting.
Inflation prints of 3.0% January and February 2.8% remain above the Fed target rate of 2%, which is why the yield curve remains inverted in the near term as market participants balance the short- term economic slowdown against the persistent inflation and the unknown impact of tariffs. Other central banks have started 2025 with 25-basis-point cuts, Canada, EU and UK as they follow the direction that the Fed set in 2024, but also need to balance the potential persistent inflation in the economy. Corporate spreads widened 20-basis-points from four-year lows to 120 basis points at the 10-year, economic uncertainty filtering into the potential default rate on investment grade bonds.
In this environment, we continue to invest selectively in investment grade bonds. We also continue to hold approximately ten percent of the portfolio in 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.
