Payden Low Duration Fund SI Class

Geopolitics remained center stage during May. While a fragile ceasefire between Israel and Iran remained in effect, the Strait of Hormuz stayed largely closed, constraining global energy markets and keeping oil prices elevated. Economic data continued to show a resilient U.S. economy, with moderate growth, stable labor markets, and inflation remaining above the Federal Reserve’s (Fed's) target. Core Personal Consumption Expenditures (PCE) inflation increased to 3.3% year-over-year in April, supported in part by rising technology-related prices as demand for AI infrastructure continued to outpace supply. While we continue to expect that cooling income growth and slower job growth should eventually support further disinflation, we acknowledge that resilient economic growth and a labor market that remains close to equilibrium could cause inflation to remain higher in the near term.

Market participants continued to reflect expectations that the Fed may need to increase policy rates to dampen inflation. This contrasted with the anticipated rate cuts that had been priced into markets prior to the Middle East conflict. As a result, the 2-year U.S. Treasury yield rose 14 basis points (bps) to 4.0%, while the 10-year U.S. Treasury yield increased 6 bps to 4.44%. Credit markets remained resilient despite higher rates. Risk premiums continued to recover from March and approached levels seen earlier in the year. Heavy issuance across both corporate and securitized sectors was met with strong investor demand, allowing borrowers to access capital with minimal concessions.

Looking ahead, the primary risk remains the evolution of the Middle East conflict. Persistently elevated energy prices could place additional upward pressure on inflation while weighing on consumer spending and economic growth.

We maintain a long duration position, although modestly trimmed from April levels, reflecting our view that the next move in policy rates will be lower, even if the timing is delayed. On the credit market side, we remain constructive that a stable economy should prove supportive. We continue to selectively and incrementally add exposure in securitized sectors where structural protections remain strong, and yield premiums remain attractive. Our focus remains on improving income potential while prudently managing risk.