LOM Fixed Income Fund Manager’s Report Q3 2022

Over the third quarter of 2022, the LOM Fixed Income Fund USD declined by -1.48% with interest rates moving higher across the curve and credit spreads widening as investors continued to fear a recession. Bonds of all maturities and sectors declined in price, but on the plus side rising rates are offering much better returns for ongoing maturities and coupons being reinvested.

In Q3, the Bloomberg U.S. Aggregate Bond Index fell 4.75% as interest rates continued to rise. Short-term Treasuries yields moved up the most as markets expect the central bank to pivot in the medium term. Credit spreads for investment grades bonds are mostly flat throughout the quarter; while spreads for high yields bonds tightened until mid-August, before rebounding back to June levels by the end of September.

The FOMC committee increased its policy rate by 0.75% at both the July and September meetings. A strong job market and persistently high inflation continue to support the Fed’s hawkish policies. The Fed Fund December Future has priced in another 1% hike by year end, to bring the Fed Fund Target Rate to 4%. According to the FOMC dot plot, which is a survey of FOMC members’ dot projections, rates will keep moving higher next year, but will shift lower in 2024.

In this environment, we have been focusing on shorter-dated maturities while opportunistically hedging our longer-term positions using derivative securities. Some of our newer positions include investment grade corporate bonds with both yields and spreads at levels not seen in over a decade!

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.