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Over the fourth quarter of 2024 the LOM Fixed Income Fund fell -0.45 as our managed fixed income portfolio outperformed the broader market by declining less. Over the past year, the Fund provided a total return of 4.42%.
The US economy demonstrated continued resilience in the fourth quarter of 2024, reinforcing the narrative of a successfully engineered “soft landing” with no imminent signs of a recession. Gross Domestic Product (GDP) expanded at an annualized rate of 2.7% in Q3 and is projected to grow at a slightly moderated pace in Q4. The labor market continued to show strength, adding 227,000 jobs in November, with the unemployment rate steady at just above 4.0%.
Looking ahead, the unemployment rate is expected to see a modest increase, from 4.1% in 2024 to 4.3% in 2025. Despite the robust job market, inflation remains a concern. The Personal Consumption Expenditures (PCE) price index, closely monitored by the Federal Reserve, rose 2.4% year-over-year in November—a figure above the Fed’s 2.0% target but lower than market expectations. This underscores ongoing challenges in achieving sustained price stability.
In Q4, the US Treasury yield curve dis inverted, driven by the Federal Reserve’s 75 basis points of rate cuts during the year. One-month Treasury Bill yields fell by 54 basis points to 4.28%, while the 10-year Treasury yield rose from 3.77% to 4.57%. This 80-basis-point jump in long-term yields reflected investor concerns over sticky inflation and the prospect of sustained higher interest rates. Investment-grade bond risk premiums tightened modestly over the period.
At the December Federal Open Market Committee (FOMC) meeting, policymakers implemented a 25-basis-point rate cut, lowering the federal funds target range to 4.50% – 4.75%. This marked the second rate cut of 2024, spurred by easing inflation and a softer labor market data. However, the Fed’s commentary suggested a more cautious approach to rate reductions in 2025. According to the FOMC dot plot, most policymakers anticipate the federal funds rate will end 2025 at 3.89%, indicating the likelihood of only two or three additional quarter-point rate cuts in the coming year.
In this environment, we continue to invest selectively in investment grade bonds with an eye towards opportunistically extending duration. 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.
