perspectives
income
Fixed-
The spike in oil prices could further delay Federal Reserve interest rate cuts.
Sovereign bond yields have risen in unison across global developed countries.
Sovereign bond yields have risen in unison across global developed countries. Even if the oil spike proves temporary, its inflationary impact could be meaningful at a time when underlying price pressures remain stubborn, underscoring rising stagnation risks. Our viewpoint for the US dollar in 2026 remains structurally bearish, however, expectations for dollar weakness may prove more tempered than they were in 2025.
Some fixed income sectors may be more resilient than others amid inflation concerns.
Some fixed income sectors may be more resilient than others amid inflation concerns. We see an improving environment for investment grade bonds, and municipals have started the year strongly. Year-to-date total returns have retreated with the geopolitical shock, but had been continuing last years solid performance supported by a resilient US economy and strong demand. Against this backdrop, we remain focused on higher quality, liquid fixed income assets and cautious in risk sectors.
MARCH 2026
Uncertainty comes roaring back
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Fixed income focus
TAX EXEMPT (Municipals)
TAXABLE
Risk Limits: Non-USD exposure varies by portfolio.
U.S. current account/fiscal conditions
Interest rate differential
Expectation for growth
Outlook for USD and 12 major currencies
CURRENCY STRATEGY – 6 voting members
Portfolios may gain exposure to non-USD fixed income based upon:
Alpha Pod Committee Profile
Current positioning: Overweight state general obligation bonds (GO); underweight Local GOs.
Overweight revenue bonds, including dedicated tax, toll road, airport, water and sewer, and senior care revenue bonds; underweight higher education
Comments/outlook: State credit quality is strong with ample reserves, though Trump policies may pressure states; underweight local GOs reflects focus on larger local governments for best market liquidity.
Within revenue bonds:
• High grade (AAA/AA) –Negative on higher education; maintain diversified exposure among other sectors.
• Mid-quality (A) –Negative on higher education; maintain diversified exposure among other sectors.
• BBB-rated & below-investment grade –Negative on hospitals and higher education bonds based on challenging credit fundamentals; positive on senior care revenue bonds.
Risk Limits Example: 0%-100% key rate duration bucket.
Federal reserve policy
Inflation expectations
Multi-factor model
Outlook for yield curve; flatter, steeper or neutral
YIELD CURVE STRATEGY – 10 voting members
Portfolios are positioned along the yield curve based on assessment of:
Alpha Pod Committee Profile
Risk Limits Example: 0.5x to 1.5x Aggregate Sectors.
0x to 3x Plus Sectors (HY and EM)
5.0% Non-benchmark Sectors (Bank Loans and Trade Finance)
Historical spread analysis
Volatility analysis
Business cycle
Outlook for each sector: high yield, treasuries, IG corporate, CMBS, MBS, municipals, floating rate
SECTOR STRATEGY – 9 voting members
Portfolios may be overweighted or underweighted relative to benchmarks after an intensive review of:
Alpha Pod Committee Profile
Current positioning: Long term funds –overweight long end/underweight intermediate vs indices.
Short and Intermediate funds – Relative barbell vs indices.
Comments/outlook: The municipal AAA curve has twist steepened YTD. Recent moves for 2s10s have been steeper from meaningfully flat levels, while the long end has retained its steepness in 10s30s. The pronounced steepening beyond 10 years, driven in part by elevated new issuance, creates a compelling opportunity on the long end of the curve.
DURATION STRATEGY – 11 voting members
Portfolios are positioned to benefit from our interest rate outlook based on a thorough economic analysis of:
Risk Limits Example:
+/- 20% of benchmark duration.
Federal Reserve monetary policy
U.S. growth, inflation and financial conditions
Emerging markets macros & markets
Non-U.S. developed country macro & sovereign relative value
Valuation indicators & quantitative models
U.S. Dollar
Treasury market supply/demand and other technical factors
Current positioning: Neutral duration
Comments/outlook: The broader economic backdrop continues to demonstrate resilience as the policymakers continue to weigh softening labor metrics against inflation that remains somewhat sticky. Geopolitical risk has now become a key macro variable, with the US –Israel conflict with Iran exerting meaningful upward pressure on global energy prices. The Fed has lowered the federal funds rate into the broadly defined neutral range and signaled it will pause further moves in the near term. Markets now look to Kevin Warsh, President Trump’s nominee to succeed Jerome Powell in May, who has advocated for lower rates. Given this backdrop—range-bound nominal yields, renewed geopolitical-driven inflation pressure, and uncertainty surrounding policy timing—a neutral duration stance remains prudent. This positioning preserves flexibility as the Fed navigates an increasingly complex macro environment shaped not only by domestic conditions but also by global energy supply disruptions.
Credit Sector Allocation
Credit
Quality
Yield Curve
Analysis
Duration
Management
Currency
Strategy
Yield Curve
Strategy
Sector
Strategy
Duration
Strategy
Security selection: Cautious and discerning on valuation
Rationale: While our valuation discipline remains, we are beginning to see greater dispersion across sectors and issuers as emerging themes around AI issuance, private credit, and merger and acquisition (M&A) evolve.
Currency management: Underweight USD.
Rationale: Our viewpoint for the US dollar in 2026 remains structurally bearish, reflecting asymmetric Federal Reserve policy skewed toward easing and a strengthening global recovery that favors procyclical and higher-yielding currencies. That said, expectations for dollar weakness should prove more tempered than they were in 2025.
Yield curve analysis: Retained the modest steepener.
Rationale: The committee maintained the steepener, expressed in 2/10 and 2/30 curves at a total of 0.2 key rate duration (KRD), despite the recent and sharp flattening of the yield curve since the US military intervention in Iran on February 28. The tenor of the conflict and enduring impact on oil supply and price remains unknown. The group did agree that the curve would move sharply when the military action ceases and/or oil supply flows freely through the Strait of Hormuz and our stance will be re-evaluated.
Duration Management: Returned to neutral (100%) benchmark duration from a slight lean short (97.5%).
Rationale: We moved to a neutral duration stance as the rise in Treasury yields following the start of hostilities with Iran, combined with heightened geopolitical uncertainty, now creates a more symmetric near-term distribution of rate outcomes. At the same time, signs of stress in the private-credit market and the potential inflationary impulse from higher oil prices reduce our conviction in maintaining a short duration bias. With risks now more evenly balanced, we believe holding index-level duration is the most appropriate posture.
Security
Selection
Currency
Management
Yield Curve
Analysis
Sector
Allocation
Duration
Management
Alpha Pod Committee Profiles
SECTOR STRATEGY – 10 voting members
Portfolios may be overweighted or underweighted relative to benchmarks after an intensive review of:
Risk Limits Example:
0.5x to 1.5x Aggregate Sectors.
0x to 3x Plus Sectors (HY and EM)
5.0% Non-benchmark Sectors (Bank Loans and Trade Finance)
Historical spread analysis
Volatility analysis
Business cycle
Outlook for each sector: high yield, treasuries, IG corporate, CMBS, MBS, municipals, floating rate
Risk Limits Example:
0%-100% key rate duration bucket.
Federal reserve policy
Inflation expectations
Multi-factor model
Outlook for yield curve; flatter, steeper or neutral
YIELD CURVE STRATEGY – 10 voting members
Portfolios are positioned along the yield curve based on assessment of:
Risk Limits Example:
Non-USD exposure varies by portfolio.
U.S. current account/fiscal conditions
Interest rate differential
Expectation for growth
Outlook for USD and 12 major currencies
CURRENCY STRATEGY – 7 voting members
Portfolios may gain exposure to non-USD fixed income based upon:
Views from our Alpha Pods
Current taxable positioning as of March 5, 2026.
Current tax-exempt positioning for national portfolios as of March 11, 2026.*
*Overweight/Neutral/Underweight provides a general characterization of fund positioning relative to fund operational benchmarks. Positioning varies across portfolios; comments above exclude ultrashort, muni microshort and state specific funds where index composition is often highly concentrated.
Sector allocation:Moved to neutral on investment-grade corporate bonds (IG). Held at neutral to mortgage-backed securities (MBS) and remained underweight to high yield (HY), emerging markets debt (EMD) and commercial mortgage-backed securities (CMBS).
Rationale: The group remains constructive on economic fundamentals and is utilizing the recent moves off historically tight valuations to add back to IG and to return to a neutral position relative to the benchmark. Valuations remain tight in the other sectors, and we opted to hold recommendations while awaiting better entry points.
Our active positioning in MBS, IG, HY, EM, and commercial mortgage backed securities (CMBS) leaves a residual overweight in Treasuries and agencies, which serves as funding for attractive out-of-index opportunities in our most flexible strategies.
Current positioning: 1- AAA- and AA-rated: neutral to overweight. 2- A-rated: neutral to overweight, 3-BBB-rated: neutral to overweight 4- Below-investment-grade: neutral
Comments/outlook: 1 Valuations are fair relative to AAA state general obligation bonds (GOs); neutral is warranted. 2 Valuation is fair to rich; neutral is warranted. 3 Valuation is fair to rich, while US economic resilience and low supply support spreads, warranting neutral. 4 Valuation is rich, while US economic resilience and low supply support spreads, warranting neutral. However, the Iran conflict materially reinforces the need for additional caution as its impact could eventually disproportionately impact lower-rated issuers.
The spike in oil prices could further delay Federal Reserve interest rate cuts. In spite of weakening jobs and retail sales numbers, oil-driven inflation concerns have lowered market expectations for Fed action. Markets initially assumed that, like many recent geopolitical conflicts, the middle east war wouldn’t have a lasting impact on US markets. But rising Treasury yields reflect the open-ended nature of the conflict with Iran, raising the prospect of an expensive military campaign when the US fiscal deficit is already large.