During the month, the Fund selectively participated in the new issue calendar, adding exposure to financials, particularly banks, following their earnings blackout period. The Fund also increased exposure to high-yield bonds and securitized products while reducing municipal bonds. Duration remains longer than the benchmark, although the Fund modestly reduced this position over the course of the month.
We see a constructive outlook for corporate bonds heading into the fall. Despite continued headlines out of the Middle East and heightened volatility in underlying U.S. Treasury yields and oil prices, there has been limited impact on corporate bonds.
From a fundamental perspective, investment-grade corporate issuers remain on very stable footing. Second-quarter earnings have come in stronger than expected, with U.S. Global Systemically Important Banks (GSIBs) reporting record results, and strong performance across a broad range of sectors. Within the technology sector, we are carefully monitoring the sharp increase in capital expenditures and its impact on leverage over time. However, we also recognize the sector's healthy free cash flow generation and the significant increases in forward guidance from hyperscale companies. That said, we remain mindful of the anticipated wave of AI-related new corporate bonds expected to come to market. In the near-term, we believe that the healthy macroeconomic backdrop and the attractive overall yield on corporate bonds can enable the asset class to perform well through the rest of this year.
