During the month, the Fund selectively purchased newly issued bonds across a broad range of sectors, including technology issuers such as Nvidia and SpaceX's inaugural bond deal. It also reduced exposure to sectors such as consumer non-cyclicals, capital goods, and insurance. Duration was modestly long relative to the benchmark.
In our view, credit markets were stable over the second quarter. With the Iran war winding down, we see a constructive outlook for corporate bonds over the summer. Significantly lower oil prices have helped ease longer-term inflation expectations and moderate recent interest-rate volatility. In addition, with current yields on US investment-grade corporate bonds above 5%, we expect the asset class to continue attracting robust demand.
Corporate fundamentals remain solid following another strong earnings season, with many companies raising their financial outlooks for the year. However, we are carefully monitoring the sharp increase in capital spending (capex) budgets and the potential for higher debt levels (leverage) if companies finance those investments through borrowing. Large cloud computing providers (hyperscalers) along with other technology companies, have already issued a record amount of new corporate debt this year to help fund these investments. Even so, investor demand has remained strong, readily absorbing the increased supply. Given these supportive market conditions and healthy corporate fundamentals, we believe corporate bonds can continue to perform well in the coming quarters.
