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The views expressed within this material constitute the perspective and judgment of PFM Asset Management at the time of distr ibution (3/31/2026) and are subject to change.Information is <br />obtained from sources generally believed to be reliable and available to the public; however, PFM Asset Management cannot gua rantee its accuracy, completeness, or suitability. <br />Fixed-Income Sector Commentary – 1Q 2026 <br />For the Quarter Ended March 31,2026 <br />Market Update <br />▸The Federal Open Market Committee (FOMC) <br />maintained the target range for the federal funds rate, <br />noting continuing challenges to achieving its dual <br />mandate of maximum employment and stable prices. <br />▸U.S. Treasury yields rose across the curve with 2- to <br />5-year tenors experiencing the largest repricing. The <br />short-end curve inversion ended given the move <br />higher in yields. <br />▸Federal Agency & supranational issuance <br />remained limited, keeping spreads narrow and <br />excess returns muted. The announcement of $200 <br />billion of mortgage purchases by FNMA and FHLMC <br />is unlikely to materially affect issuance trends with <br />buying funded by cash. <br />▸Investment-Grade (IG) corporate bond yield <br />spreads were stable in the first two months of the <br />quarter. However, in response to geopolitical <br />tensions, heightened issuance, and concerns over <br />private debt capital in the last month of the quarter, <br />spreads widened noticeably. Excess returns for the <br />sector were generally negative, but strong carry is <br />expected to provide support. <br />▸Spreads on Asset-Backed Securities widened <br />marginally, but spreads versus equivalent-duration <br />corporate notes narrowed. Auto loan collateral <br />marginally outperformed credit receivables. <br />▸30-year Agency-backed mortgage-backed <br />securities (MBS) generated solid excess returns in <br />Q1 and outperformed 15-year tenors. Surging bond <br />volatility toward quarter end neared weighed on <br />excess returns. Agency-backed commercial MBS <br />(CMBS) also produced positive excess returns for the <br />quarter. <br />▸Short-term credit (commercial paper and negotiable <br />bank CDs) experienced spread widening which <br />created opportunities, particularly in 9- to 12-month <br />tenors. Floating-rate notes also saw notable spread <br />widening, ending the quarter 10 to 15 bps wider <br />versus year end levels. <br />CITY OF REDWOOD CITY <br />PFM Asset Management | pfmam.com 26 <br />7.C. - Page 32 of 71 <br />48