Payden US Core Bond Fund

April unfolded in two distinct phases, initially marked by a relief rally as the partial reopening of the Strait of Hormuz and ongoing negotiations eased supply concerns, prompting a broad repricing across global assets. However, sentiment deteriorated in the latter half as progress toward a lasting resolution proved more complex; oil prices edged higher again, reigniting inflation concerns and pushing rates upward. Despite this uncertainty, risk assets showed resilience, supported by a solid earnings season, even as the macroeconomic backdrop reflected persistent inflation pressures and fragile growth.

Firmer inflation data released during the month, particularly on the headline side, led investors to reassess the Federal Reserve’s (Fed's) reaction function. Whilst core measures remained relatively contained, the strength in energy-driven inflation, alongside resilient activity data, reinforced the Fed’s cautious stance. The advance estimate of first-quarter GDP pointed to a rebound in growth, suggesting the economy continues to absorb tighter financial conditions. Against this backdrop, the Fed left rates unchanged and signalled patience, prompting markets to push out the timing of rate cuts. The S&P 500 ended the month up 10.42%; whilst the yield on the 10-year US Treasury finished at 4.37%.

Notwithstanding the risks around the Iranian conflict, our macroeconomic outlook remains relatively optimistic with risks tilted to the downside. The US economy remains central to our global outlook in 2026. We believe the economy will be able to absorb elevated energy prices, in line with what we observed in 2023 and 2024, with the most likely outcome being a reacceleration of growth driven by technology-led productivity gains. We expect US inflation to moderate, though elevated energy costs have delayed the timeline, and we believe the Fed will have scope to ease policy later in the year. Stickier inflation remains a risk to this central view.

We favour a long-duration position in portfolios, particularly in the front end of the US curve, as well as in select emerging markets. However, given the potential upside risk in inflation expectations, we aim to retain flexibility to add to this position should pricing become more attractive. Credit valuations have recovered much of the decline experienced in March and remain near the more expensive end of their historical range. We believe there could be greater dispersion across and within sectors, which emphasises the need for diversification and strong bottom-up fundamental analysis.

Given our central views, we maintain modest overweight positions to credit sectors, with a bias towards higher-quality sectors such as investment-grade corporates or higher-quality securitised assets.