Separately Managed Accounts

Returns across the U.S. investment grade fixed income market was largely positive during the second quarter of 2025 despite significant market volatility in April.

Interest rates were little changed with short-term bond yields slightly lower and longer-term yields slightly higher. Income production was the main contributor to returns and continues to be a key driver for the fixed income assets.

Overall fixed income sector performance for the quarter fails to encompass the volatility and dispersion that was experienced in April. As we’ve been highlighting for some time, risk asset valuations are quite full with little cushion against selloffs. This downside risk transpired in early April as the corporate and municipal sectors underperformed government bonds. While corporates recovered in May and June, credit spreads are back to levels we would consider tight.

The municipal market has yet to fully recover as large amounts of issuance pressured market technicals.  Fundamentally, credit quality across the municipal and corporate sectors remains strong. Earnings growth has been robust and balance sheets are healthy. 

We are clearly operating in an uncertain environment. Trade policy and geopolitical events are dominating headlines and will continue to be closely watched by investors. Despite these uncertainties, the US economy has been resilient.

Economic data points ranging from employment to spending have been healthy. And while inflation remains above the Fed’s 2% target, it has not spiked higher from the tariffs that have been implemented to date.

Encouraging for investors, the fundamentals of the fixed income asset classes are positive and continue to drive our constructive outlook for high quality bonds. Yields, on both a nominal and inflation adjusted basis, remain near post financial crisis highs.

Our strategies and portfolios are positioned with a quality bias, comprised of individual bond holdings that have stable credit profiles. As always, should market dislocations arise, we may look to take advantage of trading opportunities to either add yield, capture tax losses, or both. While market volatility can present concern to investors, it can also present opportunities that can add value for years to come, which excites us as portfolio managers.