Q2 2026 Investment Review
Summary
Bond market volatility eased significantly in the second quarter as negotiations progressed and a ceasefire framework ended major military operations along the Strait of Hormuz, allowing the waterway to reopen. Markets rallied on the news, supported by a resilient consumer, a steady labor market, solid corporate earnings, and a substantial AI infrastructure buildout, though it remains an open question how much of this good news is already priced in. The Bloomberg US Aggregate Index gained 0.67% for the quarter, with corporate bonds performing well despite heavy new issuance and securitized credit benefiting from consumer strength. Longer duration credit outperformed shorter duration as the yield curve flattened in June, credit spreads tightened, and a new Fed Chair took over with a slightly different approach. The Bloomberg Intermediate US Govt./Credit Index finished up 0.43%, while the shorter duration 1-3yr version gained 0.48% on the quarter.
Q3 Strategy
Our strategy remained consistent during Q2, mainly maintaining an upward bias to credit quality. Supply remained heavy in Q2 with a heavy-looking calendar on the horizon. We added to the tech-heavy supply during the quarter, but we remain underweight overall due to supply concerns. We remain cautious on CMBS, which is typically an underperformer during macro volatility. Year to date, excess returns have been strong, but spreads are close to historical tights, indicating more downside than upside. We will look to add to high-quality newly issued last cash flows and select AAA-rated SASB if spreads widen. In esoteric ABS, we're looking to add fiber ABS, capitalizing on the digital infrastructure boom without the risk of heavy supply typically associated with data center ABS.
