Q2 2025 Investment Review
Summary
The U.S. bond market posted positive returns in Q2 2025 despite volatility and tariff-related uncertainty early in the quarter. The Bloomberg Aggregate Index gained 1.21%, driven by corporate bonds and structured securities like CMBS and ABS. Financials led the corporate sector with a 2.11% return, benefiting portfolios. Credit spreads narrowed, with investment-grade spreads rallying 11 basis points to finish at 83 bps, while high-yield bonds followed a similar volatile path.
The domestic economy showed resilience but signs of slowing consumer sentiment. First-quarter GDP data revealed weak consumer spending growth, particularly in services. Manufacturing faced job losses, and average hourly earnings slowed to a 3.7% annual pace. Inflation remained slightly above the Federal Reserve’s target, with PCE inflation at 2.7%. The Fed maintained a steady approach to balancing inflation and labor market dynamics.
Third Quarter, 2025 Strategy
NIS adopted a cautious strategy for Q3, maintaining lower duration due to inflation concerns. The firm trimmed BBB and energy sector exposure, rotated into technology and consumer non-cyclicals, and remained overweight in money-center banks due to favorable regulatory changes. CMBS and ABS sectors offered opportunities, particularly hyperscale data center ABS and seasoned container ABS, which showed strong fundamentals despite earlier underperformance.
