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For the second quarter of 2024 the LOM Fixed Income Fund gained 1.24% as our managed fixed income portfolio performed better than the broader market during Q2. Over the past year, the Fund provided a total return of 5.70% compared to the benchmark return of 4.75%.
Both equity and fixed income markets continued their advance in the second quarter as earnings reports remained constructive and global central banks continued to dial back some of their more hawkish rhetoric. Softening employment data and moderating inflation rates, albeit still above some policy targets, helped tamp down future rate expectations across an inverted yield curve. In Europe, a few central banks including the European Central Bank (ECB) reduced rates.
In the second quarter, the US Treasury yield curve, though still inverted, flattened further as market participants anticipate rates remaining higher for longer. Treasury yields rose for maturities of one year and longer, with the move more notable on the 10 to 30-year term, which increased by more than 23 basis points. The risk premium for investment-grade bonds ended the quarter unchanged from the beginning.
The Federal Open Market Committee (FOMC) voted unanimously for no rate changes at both the May and June meetings, maintaining the Fed Fund target rate at a range of 5.25-5.5%.%. Despite softened inflation data over the past quarter, policymakers are not in a hurry to pivot due to strong macroeconomic indicators. According to the FOMC dot plot, a survey of policymakers’ rate projections, most FOMC members expect the Fed Funds rate to end the year at 4.85%. On the other hand, the Fed funds future market predicts the rate will end the year at 5%.
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.
