Payden Multi Asset Credit Fund

In the first quarter of 2026, fixed-income markets were shaped by a combination of resilient but moderating US macroeconomic fundamentals and rising geopolitical uncertainty. Growth remained near trend (~2%) following a strong end to 2025, whilst a weakening labour market and gradually cooling core inflation pointed to limited upside pressure on underlying inflation. However, escalating tensions in Iran, particularly risks to energy flows through the Strait of Hormuz, introduced episodic volatility and pushed yields higher amid concerns over an energy-driven inflation shock. Despite this, credit risk premiums remained relatively contained and did not meaningfully reprice, even as the broader macroeconomic backdrop became less supportive and pockets of weakness emerged across labour markets and risk assets. The Federal Reserve maintained a cautious stance, holding rates steady as it balanced near-term inflation risks against signs of softening economic momentum.

Looking ahead, the outlook remains highly path-dependent, with energy markets and policy responses likely to be the primary drivers of fixed-income performance. A wide range of outcomes persists: de-escalation could lower yields and support risk assets, whilst a sustained energy shock could tighten financial conditions and weigh on growth, ultimately leading to lower yields through demand destruction, albeit with near-term volatility. This dynamic creates an asymmetry between rates and credit where duration is positioned to perform across a broader set of scenarios, but credit remains more contingent on a benign growth and inflation backdrop. At the same time, both rates and credit remain vulnerable to a persistent energy-driven inflation shock, where yields and credit risk premiums could come under pressure simultaneously. In this environment, maintaining flexibility, incremental positioning, and valuation discipline remains critical, as markets have yet to fully price the range of potential outcomes.