April volatility may bring May opportunity

April was among the most volatile in many years for stock and bond investors. To put that volatility in perspective, we think it helps to compare where we are now with where we were right before the November election. It turns out that key market landmarks like the expected year-end federal funds rate, the 10-year US Treasury yield, and corporate bond index yields, haven’t moved all that much! Six months ago, the market was pricing an end-of-2025 federal funds rate of 3.4%. This week, it was pricing a year-end federal funds rate of 3.5%. The 10-year Treasury yield closed at 4.32%. It was 4.25% six months ago. The yields on two bond indexes that we follow are also roughly unchanged: The Bloomberg US Aggregate Index currently yields 4.56% versus 4.69% in November, and the Bloomberg US Corporate Index currently yields 5.16% versus 5.11% in November.² So, if you’d gone on vacation for the past six months and just returned, you might think nothing happened while you were gone!

Markets did just experience a major disruption, however, sparked by the so-called “Liberation Day” tariff announcements, concern over Federal Reserve independence, and heightened US policy uncertainty. In recent weeks, as the Trump administration dialed back some of its aggressive policies, a level of calm has returned to markets. Bonds are generally up over the past six months: About 1.6% for the corporate index, 2.6% for the US Aggregate Index, and 2.9% for the short 1 to 3-year credit index.¹

We answer some key investor questions.

Q: What do you make of the past month’s market action?

Matt: We tend to believe that the fixed income market pushed through. Our goal is to try to find opportunities that the market shakes out in stressful periods. During the past several months, we’ve seen a lot of volatility, but we think it’s created opportunities that could pay off over time. If you had gone on vacation for six months, yes, you would have missed a lot of market stress, but you’d also have missed out on some interesting opportunities.

Q: It seems difficult to formulate a macro view right now. How does that impact your investment decisions?

Matt: We believe it’s critical to be prudent during times of uncertainty. We agree that it’s difficult to have a clear macro view for the next three months — or even the next six months. But we try to look further out because we believe some key trends may win out — such as our view that quality tends to hold its value. So, in periods of market turmoil, our playbook is to generally go up in quality and take advantage of low-hanging fruit, since most investors tend to retreat during times like this. We’ve seen some opportunities in high quality, short-term high yield and longer-term investment grade bonds with low dollar prices. We’ve also seen top-quality large corporate issuers offer attractive new issue concessions, that we normally wouldn’t see, to help shore up their liquidity positions in this environment. It’s times like this when active managers can be especially effective, in our view. We believe that longer term, higher quality credit may win out, and that’s how we’ve managed our portfolios.

Q: What do you think about the quality of earnings so far?

Todd: The Trump administration may have heeded the message the market sent and pulled back on policy, allowing credit spreads to tighten somewhat. But we believe solid first quarter earnings also played a role. Expectations of overall revenue growth for the first quarter were around 3% to 4%, and growth has been coming in around 6% to 8%.³ So, it was a decent quarter looking back. We’ll have to wait and see if this holds true in future quarters, but overall, management guidance hasn’t been too negative. We think the economy is likely to slow, however, given the backdrop. We think it’s important to envision conditions in 2026. Historically, financial markets anticipate an earnings bottom as much as nine months in advance.

We’re also watching flows into investment grade. We saw around $24 billion in outflows in the past few weeks, which is significant.⁴ But it’s still small compared to the $300 billion of inflows last year.⁵

Q: How are you thinking about navigating markets over the next few months?

Todd: We’re don’t think we’re out of the woods yet and still expect volatility. We expect headlines to continue to sway markets, but we may see progress on some important trade deals in the background, which would likely be constructive for markets. We’ll still seek to manage risk prudently. Investment grade performed well amid the recent market turbulence. We traded into and out of it at rational prices during the height of the volatility, and any spread widening was manageable. Because of new trading tools — what we call “portfolio trading” — we can execute big block trades at once. Exchange traded fund (ETF) market growth has helped it become more widespread, which has significantly improved bond market liquidity. The ability to transact bonds more easily than in the past means that investors don’t necessarily have to move to cash during periods of heightened volatility and uncertainty.  Instead, they can adjust their investment positions and risk levels, while still staying invested.