Dynamic Global Fixed Income Fund 

Market Recap

U.S. Treasury yields declined in February, with the 10-year yield falling from 4.5% to 4.2%, as investors shifted focus from persistent inflation to rising economic risks. Concerns over trade policy uncertainty, federal spending cuts, and government employee layoffs drove demand for Treasuries, despite a higher-than-expected 0.3% rise in core PCE for January (2.8% YoY). The Fed held rates steady, maintaining a cautious stance as markets debated the timing of potential cuts later in 2025. Amid this uncertainty, credit spreads widened across both investment-grade and high-yield sectors, reflecting a shift toward safer assets.

Fund Strategy Update & Outlook

Against this backdrop, Fund performance was positive for the month, largely driven by rate-sensitive asset classes such as investment-grade credit and emerging market debt. Meanwhile, securitized products, though less sensitive to rate movements, still generated positive returns, primarily through carry (income). With elevated growth expectations, extended asset prices, and an uncertain policy environment, the team maintained a measured approach to risk. Credit exposure was modestly reduced relative to the end of 2024, with additional downside protection added via CDX HY in February. On the rates side, portfolio duration was adjusted to 1.5 years, primarily by trimming exposure at the front end of the yield curve, while maintaining the existing short position in the long end.

Going forward, we are skeptical that rates can substantially fall without risk assets responding in spades. Valuation concerns remain central to positioning, with risk assets appearing more vulnerable to the trade-off between disinflation and slower growth. In this environment, the team favors measured adjustments over aggressive shifts, maintaining a cautious stance on credit while looking for opportunities in duration exposure as monetary and fiscal policy trajectories become clearer. Moving forward, positioning will be guided by incoming data, Fed policy direction, and the evolving stance of the new administration, particularly as it relates to deficit reduction and financial conditions.