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Fixed-Income Sector Commentary – 2Q 2024 <br />PFM Asset Management LLC <br />© PFM Asset Management LLC | pfmam.com <br />For the Quarter Ended March 31, 2022 <br />California Affiliated Risk Management Authorities Market Update <br />For the Quarter Ended June 30, 2024 <br />Market Update <br />▸U.S. Treasury yields once again rose over the quarter, <br />reflecting the market adjusting to delayed rate cut <br />expectations, but remained largely range -bound following <br />the June Fed meeting. Despite higher yields, U.S. <br />Treasury indexes less than 10 years posted positive <br />returns as higher income more than offset the negative <br />price effects. <br />▸Federal Agency spreads remained in a narrow, tight <br />range over the quarter driven by limited supply. Limited <br />value, tight spreads, and normalized liquidity are likely to <br />remain features of this sector absent an unexpected <br />increase in new issuance. Callables, specifically, longer <br />lockout structures with limited call options, can add value <br />selectively in government-only accounts. <br />▸Supranational spreads tightened on maturities on the <br />short end of the curve, bringing the entire supranational <br />yield curve into rich valuations. <br />▸Investment-Grade (IG) Corporates continued to perform <br />exceedingly well for the majority of the quarter, as strong <br />performance in April and May offset modest weakness in <br />June. Lower rated issuers and longer-duration securities <br />performed best. Given strong trailing performance and <br />spreads near their two-year tights, selective trimming in <br />favor of increased portfolio liquidity or new issues offered <br />at attractive concessions remains appropriate. <br />▸Asset-Backed Securities continued to generate <br />strong returns, as spreads in the sector flatlined in a <br />tight range near their multi-year lows for most of Q2. <br />Despite modest weakening in market confidence of <br />consumer fundamentals and moderating personal <br />consumption, new issuance remained well-digested by <br />investors. <br />▸Mortgage-Backed Securities ended the quarter with <br />flat excess returns as a selloff in the 30-year U.S. <br />Treasury over the final week of Q2 erased the strong <br />performance of MBS in May and June. Several new <br />issue opportunities in agency commercial mortgage- <br />backed securities offered selective new buying <br />opportunities. <br />▸Short-term credit (commercial paper and negotiable <br />bank CDs) yield spreads continue to tighten closer to <br />similar maturity USTs. However, the sector can <br />selectively provide value with incremental yields <br />ranging 20 to 25 basis point in 9- to 12-month <br />maturities. <br />6.B. - Page 32 of 65 <br />46