January data underscored an economy that remains sound, even as the labor market presents a more complicated picture. The employment report showed payroll gains of just 50K, with prior months revised lower, yet the unemployment rate ticked down to 4.4%. Hiring has clearly slowed, but the lack of deterioration in unemployment suggests the labor market is holding steady rather than weakening outright. Job gains remained narrow, concentrated in healthcare and services, while manufacturing and construction continued to contract.
On the inflation front, the news was more constructive. Core CPI rose just 0.2% for the month, undershooting expectations, while headline CPI came in at 0.3%. Year-over-year readings held at 2.6% for core and 2.7% for headline. Shelter and food prices drove much of the monthly increase, but the broader trajectory continues to drift toward the Fed's target.
At its January meeting, the Fed opted to hold rates at 3.50%–3.75%, though Governors Waller and Miran voted for a 25 bp cut. The statement struck a more confident tone on growth and acknowledged that unemployment has leveled off, while dropping earlier references to rising labor market risks. Chair Powell made clear the Committee sees no pressing need to cut further but remains prepared to move in either direction depending on how the data evolve. The nomination of Kevin Warsh to succeed Powell as Fed chair, pending Senate confirmation, adds a new variable for markets to consider as the leadership transition approaches in May.
Market conditions were somewhat supportive during the month. Treasury yields moved higher, but credit spreads compressed across both investment-grade and high-yield sectors, and agency MBS spreads tightened further, benefiting our holdings.
In Short Term Bond Fund, we continue to balance disciplined rate exposure with selective additions to high-quality credit. Positions in short-duration corporates remain a priority, favoring issuers with strong balance sheets as hiring breadth narrows. Agency mortgage holdings gained from the month's spread tightening, and portfolio liquidity remains robust. Duration is aligned with category peers, keeping the fund positioned to generate income while retaining flexibility as the Fed navigates a murky policy outlook.
Economic data in January revealed an economy that continues to hold together, though crosscurrents in the labor market are becoming harder to ignore. Payrolls expanded by a modest 50K, with downward revisions to prior months, and gains were heavily tilted toward healthcare and services. Manufacturing shed jobs for another month. Yet despite the tepid hiring numbers, the unemployment rate dipped to 4.4%, indicating the labor market may be finding a floor even as momentum fades.
Inflation data brought some welcome news. Core CPI came in below forecasts at just 0.2% for the month, with headline at 0.3%. On a year-over-year basis, core remained at 2.6% and headline at 2.7%. Food and shelter costs accounted for most of the monthly uptick, but the overall direction continues to move closer to where the Fed wants it.
The Federal Reserve kept rates unchanged at 3.50%–3.75% at its January meeting, with two governors dissenting in favor of a cut. The statement characterized the economy as growing at a healthy clip and noted that unemployment appears to have steadied, while acknowledging that price pressures have not fully abated. Chair Powell conveyed that the Committee is comfortable staying patient, with no clear signal that additional easing is imminent. The nomination of Kevin Warsh to replace Powell when his term ends in May introduces a potential shift in Fed leadership that markets will be watching closely as the confirmation process unfolds.
January brought mixed conditions for fixed income markets. Rates rose, but spreads narrowed across investment-grade corporates, high yield, and agency MBS.
Within Multi-Sector Bond Fund, positioning reflects this backdrop. Allocations to rate-sensitive areas, including agency mortgages and longer-dated investment-grade bonds, captured the benefit of tighter spreads. The portfolio maintains an emphasis on higher-quality credits as labor market conditions grow more uneven. In high yield, we continue to favor shorter-duration bonds from established issuers, seeking to balance income generation with downside protection. Ongoing efforts to enhance the fund's coupon profile have reduced reliance on rate movements for total return. Liquidity remains healthy, and duration is in line with category peers.
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The performance data quoted represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. For performance information current to the most recent month-end, please call toll-free 800-544-6060
Sources: Yorktown Management & Research Co., Bloomberg.
All estimates use daily fund pricing and Yorktown's standard credit quality evaluation method.
Definition of Terms
United States Treasury (UST) - the national treasury of the federal government of the United States where it serves as an executive department. The Treasury manages all of the money coming into the government and paid out by it.
Asset-Backed Security (ABS) - An asset-backed security is an investment security --a bond or note --which is collateralized by a pool of assets, such as loans, leases, credit card debt, royalties, or receivables.
Basis Points (bps) - refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
High Yield (HY) - high-yield bonds (also called junk bonds) are bonds that pay higher interest rates because they have lower cre dit ratings than investment-grade bonds. High-yield bonds are more likely to default, so they must pay a higher yield than investbonds to compensate investors.
Investment Grade (IG) - an investment grade is a rating that signifies that a municipal or corporate bond presents a relatively low risk of default.
The funds are distributed by Ulitmus Distributors, LLC. There is no affiliation between Ultimus Fund Distributors, LLC and the other firms referenced in this material.
Gross Domestic Product (GDP) - The total value of goods produced and services provided in a country during one year.
Personal Consumption Expenditures (PCE) - the primary measure of consumer spending on goods and services in the U.S. economy.
Mortgage-backed securities (MBS): Debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property.
The fund itself has not been rated by an independent rating agency. Ratings (other than U.S. Treasury securities or securities issued or backed by U.S. agencies) provided by Nationally Recognized Statistical Rating Organizations (NRSRO's) including Standard & Poor's, Moody's, Fitch, Kroll, Morningstar DBRS, A.M. Best, and Egan-Jones. This breakdown is not an S&P credit rating or an opinion of S&P as to the creditworthiness of such portfolio. This breakdown is provided by Yorktown Management & Research. When calculating the credit quality breakdown, the manager selects the middle rating when three or more rating agencies rate a security. When two agencies rate a security, the higher of the two ratings is used, and one rating is used if that is all that is provided. A rating of BB and below would represent below investment-grade. Ratings apply to the credit worthiness of the issuers of the underlying securities and not the fund or its shares.
Ratings may be subject to change.
Investing involves risk, including loss of principal. There is no guarantee that this, or any, investment strategy will succeed. Fixed income investments are affected by a number of risks, including fluctuation in interest rates, credit risk, and prepayment risk. In general, as prevailing interest rates rise, fixed income securities prices will fall. Diversification does not ensure a profit or guarantee against loss.
1 Includes Structured Notes, Preferred, and Corporate Bonds not rated by a Nationally Recognized Statistical Rating Organizatio n (NRSRO).
2 Duration measures the sensitivity of the price (the value of principal) of a fixed -income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. Spread duration is the sensitivity of the price of a security to changes in its credit spread. The credit spread is the difference between the yield of a security and the yield of a benchmark rate, such as a cash interest rate or government bond yield.
3 Rating Sensitive, Component, and Step-Up Bonds.
4 Weightings subject to change.