Payden Absolute Return Bond Fund

April was characterised by continued US economic resilience alongside persistently elevated inflation, reinforcing a more restrictive global policy backdrop. First-quarter GDP expanded at a 2% annualised pace, supported in large part by ongoing strength in technology-related investment, while the labour market remained stable with unemployment holding near 4.3%. Limited labour force growth continues to mask underlying softness in job creation, suggesting equilibrium rather than strength. Inflation remains the key challenge, with core personal consumption expenditures (PCE) rising to 3.2% year-over-year and ongoing pressure from elevated commodity prices, particularly oil, amid geopolitical tensions. In response, the Federal Reserve (Fed) held rates steady at 3.75%, signalling a prolonged pause. Markets adjusted to this "higher-for-longer" dynamic: front-end US Treasury yields remained elevated, longer-end yields drifted higher with inflation uncertainty, and yield curves stayed relatively flat. Risk assets proved resilient, with equities advancing modestly on strong earnings, particularly in technology, whilst credit risk premiums retraced much of their earlier widening despite the more uncertain macroeconomic backdrop.

Looking ahead, the environment remains highly path-dependent, with resilient growth and sticky inflation keeping central banks on hold for the foreseeable future. We expect the Fed to maintain its current policy stance through most of 2026, with the potential to resume easing only as inflation begins to moderate later in the year. In the near term, elevated commodity prices and geopolitical uncertainty may continue to drive inflation volatility, limiting the scope for policy easing and keeping rates higher for longer. Against this backdrop, we maintain a preference for interest rate exposure over credit, given more attractive valuations and improved defensive characteristics. At the same time, increased dispersion across regions and sectors is creating a broader opportunity set, particularly in emerging markets and select securitised assets where fundamentals remain supportive. Overall, the strategy remains focused on balancing income generation with a cushion during market declines, maintaining flexibility to adjust positioning as macroeconomic conditions evolve and more attractive entry points emerge.