U.S. fixed income markets exhibited notable firmness during the third quarter, characterized by a decline in short-term yields. This movement was primarily driven by growing anticipation of rate cuts by the U.S. Federal Reserve. A significant contributing factor to this sentiment was the increasingly dovish rhetoric from Federal Reserve officials, coupled with emerging signs of a softening labor market. These elements collectively led to a rate reduction by the Fed in September.
Amidst these broader market shifts, various segments of the fixed income landscape experienced positive developments. Short-term investment grade corporate credit spreads tightened by 5 basis points, while Commercial Mortgage-Backed Securities (CMBS) spreads saw a more substantial tightening of 15 basis points. Additionally, Asset-Backed Securities (ABS) spreads tightened by 8 basis points, indicating a favorable environment for these assets. The Fund's performance reflected this positive trend, achieving a return of 1.59% for the quarter ending September 30, 2025, based on Net Asset Value (NAV) of Class I shares with all distributions reinvested.
Looking ahead, the outlook for fixed income remains highly promising. Treasury yields across the entire curve are currently positioned near their highest levels in the past decade, presenting a compelling opportunity for investors seeking attractive returns. This elevated yield environment, combined with the recent policy adjustments and market behavior, suggests a robust and engaging landscape for fixed income investments.
The current market conditions, marked by strategic adjustments from the Federal Reserve and a responsive fixed income sector, offer a clear path towards financial resilience and growth. Investors who navigate this landscape with insight and adaptability are well-positioned to capitalize on the unique opportunities presented, fostering sustained progress and stability in their portfolios. This period underscores the dynamic nature of financial markets and the potential for positive outcomes through informed decision-making.