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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 Outlook – 2Q 2026 <br />For the Quarter Ended March 31,2026 <br />Market Update <br />▸While future Fed policy remains uncertain amid the <br />ongoing conflict, we view the meaningful rise in <br />U.S. Treasury yields as an opportunity. As a result, <br />for shorter duration strategies, we prefer a modestly <br />longer duration stance. For longer duration strategies, <br />we believe the risk profile is less favorable relative to <br />shorter strategies but will maintain a curve steepening <br />bias by modestly underweighting the long end of the <br />curve. <br />▸Federal Agency & Supranational spreads are likely <br />to remain at tight levels. Government-only accounts <br />may find occasional value on an issue-by-issue basis. <br />▸Taxable Municipals continue to present limited <br />opportunity due to an ongoing lack of supply and <br />strong demand which is keeping yields low. We do <br />not expect this dynamic to change in the near term. <br />▸Investment-Grade (IG) Corporate bond <br />fundamentals remain stable with technicals <br />supportive of the sector. All-in yields remain attractive <br />and wider spreads have improved value. We expect <br />an increase in buying opportunities across both new- <br />issue and secondary markets. <br />▸Asset-Backed Securities fundamentals remain <br />within expectations and credit enhancements remain <br />robust. We expect supply to increase as credit card <br />issuers re-enter the market, with demand remaining <br />strong and new issues well-digested. We expect solid <br />consumer fundamentals and structural credit <br />enhancements to insulate the sector from meaningful <br />downturns. We expect carry to be the driver of <br />excess returns. <br />▸Mortgage-Backed Securities are expected to <br />remain rich despite increased market volatility <br />modeslty aiding valuations. With spreads remaining <br />historically tight, opportunities are limited, and we will <br />look to other sectors for better value. <br />▸Short-term credit (commercial paper and negotiable <br />bank CDs) spreads have widened notably in Q1. We <br />favor maturities beyond 9 months given the positively <br />sloped curve, wider spreads, and added protection <br />against potential Fed rate cuts late this year. <br />CITY OF REDWOOD CITY <br />PFM Asset Management | pfmam.com 27 <br />7.C. - Page 33 of 71 <br />49