November featured a significant rally across asset classes as volatility indices moved sharply lower to completely reverse their October spikes. U.S. equities recorded large gains, while credit spreads tightened in corporate debt, agencies, and asset-backed securities. Treasury rates initially sold off into a bear steepening following the presidential election, but they ended the month net lower in yields on a bull flattening.
Opening the month, nonfarm payrolls arrived below estimates but did not catch the market by much surprise, given that investors expected impacts from hurricanes and a labor strike. There was only a de minimis change in the unemployment rate while average hourly earnings surprised to the upside. Payroll growth was meanwhile revised lower for the preceding two months.
The first full week of the month was eventful, with the reaction to the election outcome pushing rates higher on altered expectations for growth and inflation. The long end of the yield curve typically experiences the most impact in matters relating to growth and government spending, and the 30Y Treasury initially sold off 17 basis points (bps) on November 5th. However, it had retraced 14 bps within just two days after. The November Federal Reserve Board (Fed) meeting immediately followed, concluding on the 7th, as the Fed Funds target range was cut 25 bps to 4.50%-4.75%. The vote for the cut was unanimous. Within the Fed’s statement, the committee updated its language to say that “labor market conditions have generally eased” and “inflation has made progress.” Rates rallied across the curve in response. The market’s question going forward will continue to pertain to the rate of disinflation and how much it’s slowing. Many have wondered if 2% inflation is a truly realistic goal given the economy’s present path. Growth and labor markets, meanwhile, look good.
The CPI (Consumer Price Index) report on the 13th pushed rates in different directions along various points of the yield curve. Headline year-over-year CPI (+2.6%) and core month-over-month CPI (+0.3%) arrived at their consensus targets but have remained stubborn as the short-term rate of change in inflation has picked up. Shelter costs continue to rise and present challenges. A day later, Fed Chair Powell spoke, saying that the economy has been strong enough to allow the Fed some leeway in its path for cutting rates. His messaging was less dovish than recent Fed communications, and the front end of the yield curve shifted higher.
Nonetheless, the final, holiday-interrupted stretch of November saw rates rally to finish lower in yield than where they began the month. The biggest catalysts for the late-month move were the Fed minutes which read as positive for inflation, and the Scott Bessent selection for Treasury Secretary for the incoming Trump administration. The resulting sentiment was strong enough to overcome some core PCE (Personal Consumption Expenditures Price Index) data that showed the highest 12-month rate of inflation reading since this past spring.
Yorktown Funds Fixed Income Focus – Holiday Musings
“Things turn out best for people who make the best of the way things turn out.”
- John Wooden
It’s all a blur at this point. These months always feel that way. One minute I’m carefully positioning a vampire in the corner of my porch, making sure the audio is loud enough to frighten those looking for candy but not too loud as to later lead to therapy. The next minute I’m setting the table with assorted gourds and pilgrim salt and pepper shakers and convincing myself that 7 plates of food isn’t really that many total calories. All to end with me surrounded by an army of Santas as I pretend to really, really enjoy the Peanuts TV special which I secretly hate but feel it wouldn’t be festive to say out loud. One thing is for sure, despite all the food and sweets of this three-month gauntlet of festivities I surprisingly end this time period in the best shape of the year. I owe that to the fact that I am constantly climbing up and down the attic stairs; going up to put away last month’s decorations and bringing down the next month’s accoutrements. And while I like to think I usually do a pretty thorough job with the decorations, despite taking the cramping in my legs on the last trip up those stairs, my wife was none too pleased this year to find a werewolf I had somehow missed and then lazily attempted to camouflage with a Santa beard and hat lurking in the hallway corner. I reminded her that even the undead can be full of Christmas cheer, but she found my argument unpersuasive and up the stairs I went. Again.
It's a grind, but I take solace in that it is just that time of year. The same can be said for the fixed income market. It’s that time of the year where the fixed income market grinds to a crawl as we enter deeper into the fourth quarter. Plenty of investors prefer to use this time to step back and lock in returns, and as a result, while current market conditions are benign from a credit standpoint, and ripe with liquidity, interest in doing too much to their portfolios wanes. Rather it is time to give thanks, spread cheer, take a deep breath, and consider where we see the market going short term, near term and long term. Better yet, take the time to consider conditions that might prove beneficial down the road and strategize on how best to stay away from things that might cause regret and concern later. We’ve traveled these steps before. Here are four things we think are worth watching closely come the new year:
Corporate Credit
It’s a common theme for us. We remain wary. We are in what is considered a relatively benign credit environment. Despite the high yields available, and as such, an ability to lock-in attractive yields high up in the investment grade stack, there is a large part of the investor base still chasing the far more risky, higher yielding debt. Enough so, as we discussed last month, spread compression has occurred up and down the corporate credit stack. That has translated into a moment where credit spreads are no longer representative of what you should be getting paid for the risk you are taking. It isn’t going to improve. With upcoming debt maturities for the high yield borrower, they are now faced with refinancing at levels, even with compressed credit spreads, of more than 300 bps above that which they pay now, according to a recent Bloomberg article. Worse, a good swath of this part of the corporate credit world is already ailing and not enough seem to be noticing, or care, and continue piling into the risk. Below is a chart, in which Fitch Ratings detailed their Top Market Concerns list, which is a compilation of what they feel is in danger of defaulting within the next 24 months, and worse, a great deal of which most likely will do so within a year.
Source: Bloomberg
The flood of capital from private credit might provide a lifeline to some of these credits and others already suffering. They might even have already done so. But these high financing costs and the stubbornly high number of companies already on the edge, mean there is a tipping point on the horizon. It won’t take much to push many of these over that edge. If private credit starts to feel the pain from a high number of defaults and funding slows down or worse, dries up, it would exacerbate the issue. It does seem like wider spreads at the very least are on the horizon, and that volatility would spike if the wrong spark occurs creating havoc with default rates and pricing.
Money Market Funds
Like many things in the fixed income space, such as yields, credit spreads, and issuance, money mark funds (MMFs) are living in a historic moment. In this instance it has to do with total assets under management (aum). MMFs are basking in the sun, with total aum reaching levels never seen before. The MMF industry tends to be split in moments such as this. Investment managers for these types of strategies are thrilled to have some opportunity at yield, after years of dealing with near zero rates, and especially to do so at a moment where aum has grown to historic highs. And yet, they also recognize the danger it represents. MMFs as a fixed income category are typically more like a Stuckey’s, a place to pull off the road, especially in a moment of crisis, close your eyes for a little bit, let the danger pass and contemplate which road to take after you’ve had a chance to regroup. Once the crisis is done, investors tend to move quickly out of the MMFs space and deploy into their preferred investment areas. The speed of that unwind is of particular concern to those in the MMFs space. A lot of redemptions in this space in a short period of time could potentially impact pricing and the NAV of these strategies. The last time we witnessed such a jump in aum was in the midst of the Great Financial Crisis (GFC) when aum spiked in MMFs from around $2 trillion in 2006 to about $3.8 trillion in 2008. When the environment calmed, MMFs aum plummeted some 37% in a rapid 9 months. Today’s MMFs aum is reported by the Federal Reserve at around $6.5 trillion. Having 37% of that unwind in short order is definitely a concern for the MMFs industry.
It's also a concern for the rest of the fixed income space. Because when investors do move out of MMFs, where will they redeploy? With a reported $6.5 trillion now in MMF aum, if a similar 37% GFC-type unwind scenario were to occur, that would mean another $2 trillion of capital being redeployed into the capital markets, flooding it. At best, that type of influx of capital would potentially skew pricing, demand and spreads and likely encourage more risk taking simply to get invested. All at a moment where we know you aren’t getting properly paid for the risk currently being taken.
We are definitely keeping a careful eye on MFFs aum for signs of stress in the short end of the curve once that unwind begins to occur, and whatever ripples the redeployment causes across other markets.
Source: Federal Reserve
Agency Mortgage-Backed Securities
We continue to find value in this sector. In the face of tepid demand, spurred on by the retreat of its biggest investor, commercial banks, agency mortgage-backed securities (MBS) still managed to have a solid year, generating over 5% of yield in 2023, according to Bloomberg. Thus far, 2024 has been similar yield, and we have also witnessed some 64 bps of excess return with the option adjusted spread (OAS) tightening. In the midst of the market’s excessive thirst for corporate credit, no matter how creditworthy the issuer is, and the silent protest of other investors waiting on the sidelines as part of the MMFs aum growth story, MBS continues to chug along. The sector provides ample opportunities for diversification, and customization, given characteristics that are available to the discerning eye when evaluating multiple types of pools. Furthermore, government risk at yields comparable or even better than corporates should make the current proposition attractive for any investor.
As it stands, MBS presents not only current value, but future overperformance opportunities as well. According to Bloomberg research, with the current expectation based on rate projections in the future remaining constrained within a tight band, MBS should provide top of the fixed income class returns, with the majority of that attributable to yields and current rate levels, and a small portion helped along by future OAS tightening.
Perhaps just as important, if not more, however, is the return of the biggest part of its investor base: commercial banks. Not necessarily growth of that base, but a simple return of that investor base’s interest, means that spreads should tighten and thus provide attractive upside potential to the overall asset class. This becomes more probable in a more relaxed regulatory environment many anticipate will occur under the new presidential administration but also a more accommodating banking cycle with less aggressive capital requirements which could provide the necessary impetus to drive more demand into the agency MBS space as well. We would expect that all of these factors would ultimately contribute to this sector’s overperformance in the near-term.
Source: Federal Reserve
Consumer Health
One thing we’ve pointed out in the past and continue to monitor is just how deep households, the consumer, are getting into debt. We love to spend, and the consumer expenditures numbers get a lot of cheers when that data point hits in economic reports, but as we have known for a while, we are using smoke, mirrors and credit cards to pay for it. What’s in our wallet? Not much. Apparently a rubber band and some pocket lint, but we also have a credit card and we sure are gonna use it. Credit card debt, according to the Federal Reserve, is now almost $1.1 trillion. And the trend is for it to continue to climb higher. That is a hefty bill coming due.
Source: Federal Reserve
But no worries, because unemployment is around 4.2% and other employment barometers indicate all systems go. We aren’t so sure. As we have shared in the past, we have been of the opinion that the barometers are not necessarily off but obscuring or muddying the waters as to what is happening around us. Indeed, countless headlines and other anecdotal evidence would seemingly indicate a variety of cracks forming in the employment story. Given our economy’s reliance on consumer spending, any reversion or even a slow down at this point would be damaging and potentially cause concerning ripples across a variety of corporate health measures. And we are seeing those cracks.
One is below, illustrated in the chart for delinquencies of the same credit card debt. As one can see, those are increasing. Not quite a spike but a very noticeable, consistent and troubling trend of growing higher and higher. Off its lows of some 1.5% back in July of 2021 when the market was awash with pandemic-driven government liquidity, it has virtually doubled and is now reading 3.23% as of the end of July 2024. The high-rate environment post-Fed rate hikes was at some point going to have an impact, and certainly revolving credit loans, such as this category were prime ground for it. If this continues, we might be seeing the beginning of that type of detrimental response from the consumer some fear. Furthermore, given the amount of credit card debt keeps rising, the hard dollar number of those accounts in trouble is certainly much bigger than we have seen in the past.
Source: Federal Reserve
As we approach the end of the calendar year, we have these and several other data points and trends we continue to monitor. While the above can seem a bit overly pessimistic, it’s important to note that we don’t necessarily expect a large credit downfall or recession type response. Rather, given that everything in the market is priced so tight and close to perfection that even the slightest reversion to the mean or a step back from those frothy spread levels has the potential to cause a fairly significant spread widening and liquidity pull back.
As such, we continue to use tools such as these to help us determine how best to navigate the short-term and how to use these expectations and outlooks to position ourselves to capture near-term and long-term opportunities. As we have stated, we remain focused on stepping higher up in credit, taking advantage of the higher yields at stronger credits, and making sure the portfolios exhibit a high degree of liquidity and diversification. Sometimes it isn’t so much about racing up and down the stairs, chasing the next shiny object. Sometimes it’s about patience, and simply letting the market evolve in the manner you expect.
Investment Focus
- Rate cuts are still on the table, albeit at a pace now expected to be slower and fewer. Expectations are that we will see one more cut in the near term, and then there is a possibility even of a pause. Recent Fed speak seems to be steering us in that direction. We are positioned in a manner to help mitigate rate risk by staying as neutral as possible to that, despite the noise of geopolitical events occurring, domestic worries, and the incoming, new presidential administration.
- Credit environment remains benign. Investors are aggressively chasing credit, with spreads remaining historically tight. We see anecdotal evidence on occasion that presents a contrarian view to that of the market which has us wary. We remain defensive in terms of credit, preferring higher ground and focus on adding names that we feel will do well in a more volatile credit environment.
- Liquidity remains robust. Primary corporate bond issuance continues to be heavy, and asset-backed securities (ABS) primary issuance has now reached historic highs. Secondary trading seems strong, with plenty of volume occurring and dealers seem receptive to positioning paper. We continue to use this level of liquidity to move into targeted durations and exposures, helping further build a foundation for what we feel will provide near-term overperformance.
Noted asset sector target or bias this month includes:
- Solid value continues to be prevalent in agency debt. The sector remains attractive. With global geopolitical issues on the front burner and the transition to an incoming presidential administration in which the market is unsure of fallout as it pivots to make good on campaign promises, all potentially carrying credit and rate volatility. As such, agency debt should help mitigate some of the uncertainty. Further, on a comparative basis versus corporate bond yields there seems to be a solid argument in favor of simply taking the competitive yield and liquidity of agency paper. Agency paper remains a great place to ladder maturities, given the embedded call options, with a consistent and high degree of liquidity as further support to the investment theses.
- Corporate variable rate debt, or floaters, has regained some traction. With rates stubbornly expected to remain higher for longer and the market expecting a slower and maybe stagnant rate cuts outlook, the shorter floater has value. We continue to feel credit spreads, at historic tights, and especially those in deep high yield rating classifications gives us pause as to the value proposition there. We expect those to widen in the near-term. Floaters however seem to be more attractive with the rate environment, especially those with maturities 3 years and in as an attractive means to mitigate short term volatility. Corporates overall remain high in demand and liquidity remains exceptionally strong for the market. It remains a great moment to reconfigure risks and prudently trim positions to move into more desirable sectors that are either defensive in terms of credit or we anticipate will provide more upside in expected future economic and credit conditions.
- Overall, ABS is a selective add. We continue to see spread tightening across the board, and even less liquid asset classes are finding traction. We find more value in equipment leasing deals, up and down the credit stack, as well as senior tranches of collateralized loan obligations (CLOs). There is a push from the dealers to find value in commercial mortgage-backed securities (CMBS), but we continue to avoid the sector as the fallout from high rates and an inability to refinance efficiently continues to encourage default and special servicing rates higher and higher. The long-tail of this unwind remains concerning. Auto ABS paper remains attractive, but there seems to be more value in seasoned paper, albeit certain vintages such as those originated in 2022, are not performing as well and worth avoiding. Long term outlook remains constructive for the space, but we remain more focused on the more liquid asset classes for that particular benefit, as well as diversification and expected short-term spread compression for near-term performance reasons.
- Business Development Companies (BDC) remain an avoid. Lost in the hoopla of the private credit enthusiasm is the impact on sectors that are affected by the sudden influx of capital into lending to smaller and less creditworthy firms. BDCs continue to find themselves fighting to defend their turf versus banks, CLOs, and loan funds in the past, and now additionally have to deal with the mammoth presence of private equity shops and their ever growing private credit funds. We feel the pressure to perform, let alone to get even invested, is more and more stressful to the BDC space, and would expect leverage to continue to rise at the same time credit issues begin to emerge.
- Agency mortgage-backed securities (MBS) had an excellent month to rebound from a softer October. The mortgage basis tightened by 16 bps as recent production bonds rallied between a half and full point up in price. Prepayment speeds from the prior month were higher, helping discount pools, but speeds should remain muted going forward. Along with the winter seasonal drag on housing turnover, most of the mortgage universe still sits out of the money to refinance. The headline 30Y mortgage rate is nearly 7%, while underwhelming bank demand and challenging refinance break-evens still represent headwinds to the asset class. Our long-term outlook for agency MBS is positive. Mortgage spreads are still wide as technical demand has not returned following the banking issues in March of 2023. The current level of interest rates offers long-term performance potential for rate-driven products, leaving many MBS return profiles attractive to us, especially into any additional spread widening. We continue to believe the asset class looks noticeably cheap to corporate debt. Higher coupon securities at reasonable valuations offer sufficient carry to weather some near-term spread volatility, if needed, as there isn’t a direct reason to expect imminent further basis tightening.
A new presidential administration, and their economic agenda continues to sway market some. How much of election promises will be implemented and ultimately effect markets is a daily digestion. This will continue to result in turbulence as the market moves through this. We remain consistent in our viewpoint on both: focus on high credit quality names, finding value in the targeted duration in the proper credits. We prefer to stay focused on highly liquid, targeted defensive sectors and exposures, as well as seeking opportunities within rate movements at certain points on the yield curve with the potential for higher returns. We feel the front end of the yield curve, the 3 year maturity area, specifically offers value, as well as the 10 year maturity area. Both areas provide some duration benefits in the right name, and potential overperformance as the rate rally continues. As near-term pressures move markets, we feel this area will provide a foundation for future performance targets.
Definition of Terms
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.
Baby Bonds – a bond that has a face value of less than $1,000.
Curvature - A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.
Mortgage-Backed Security (MBS) - A mortgage-backed security is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them.
Collateralized Loan Obligation (CLO) - A collateralized loan obligation is a single security backed by a pool of debt.
Commercial Real Estate Loan (CRE) - A mortgage secured by a lien on commercial property as opposed to residential property.
CRE CLO - The underlying assets of a CRE CLO are short-term floating rate loans collateralized by transitional properties.
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.
Option-Adjusted Spread (OAS) - The measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option.
Enhanced Equipment Trust Certificate (EETC) - One form of equipment trust certificate that is issued and managed through special purpose vehicles known as pass-through trusts. These special purpose vehicles (SPEs) allow borrowers to aggregate multiple equipment purchases into one debt security.
Real Estate Investment Trust (REIT) - A company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors.
London InterBank Offered Rate (LIBOR) - a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.
Secured Overnight Financing Rate (SOFR) - a benchmark interest rate for dollar-denominated derivatives and loans that is replacing the London interbank offered rate (LIBOR).
Delta - the ratio that compares the change in the price of an asset, usually marketable securities, to the corresponding change in the price of its derivative.
Commercial Mortgage-Backed Security (CMBS) - fixed-income investment products that are backed by mortgages on commercial properties rather than residential real estate.
Dry Powder – cash or marketable securities that are low-risk and highly liquid and easily convertible to cash.
Floating-Rate Note (FRN) - a bond with a variable interest rate that allows investors to benefit from rising interest rates.
Consumer Price Index (CPI) - a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
Gross Domestic Product (GDP) - one of the most widely used measures of an economy's output or production. It is defined as the total value of goods and services produced within a country's borders in a specific time period—monthly, quarterly, or annually.
Perp - A perpetual bond, also known as a "consol bond" or "perp," is a fixed income security with no maturity date.
Nonfarm payrolls (NFPs) - the measure of the number of workers in the United States excluding farm workers and workers in a handful of other job classifications. This is measured by the federal Bureau of Labor Statistics (BLS), which surveys private and government entities throughout the U.S. about their payrolls.
Net Asset Value (NAV) - represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities.
S&P 500 - The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on exchanges in the United States.
German DAX - The DAX—also known as the Deutscher Aktien Index or the GER40—is a stock index that represents 40 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system.
NASDAQ - The Nasdaq Stock Market (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is ranked second on the list of stock exchanges by market capitalization of shares traded, behind the New York Stock Exchange.
MSCI EM Index - The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries. With 1,382 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
Nikkei - The Nikkei is short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a price-weighted index composed of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange.
Shanghai Composite - is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.
Bloomberg U.S. Agg - The Bloomberg Aggregate Bond Index or "the Agg" is a broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance.
MOVE Index - The ICE BofA MOVE Index (MOVE) measures Treasury rate volatility through options pricing.
VIX Index - The Cboe Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX).
Dow Jones Industrial Average - The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.
Hang Seng - The Hang Seng Index is a free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong.
STOXX Europe 600 - The STOXX Europe 600, also called STOXX 600, SXXP, is a stock index of European stocks designed by STOXX Ltd. This index has a fixed number of 600 components representing large, mid and small capitalization companies among 17 European countries, covering approximately 90% of the free-float market capitalization of the European stock market (not limited to the Eurozone).
Euro STOXX 50 - The EURO STOXX 50 Index is a market capitalization weighted stock index of 50 large, blue-chip European companies operating within eurozone nations.
CAC (France) - is a benchmark French stock market index. The index represents a capitalization-weighted measure of the 40 most significant stocks among the 100 largest market caps on the Euronext Paris (formerly the Paris Bourse).
U.S. MBS Index - The S&P U.S. Mortgage-Backed Securities Index is a rules-based, market-value-weighted index covering U.S. dollar-denominated, fixed-rate and adjustable-rate/hybrid mortgage pass-through securities issued by Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC).
Duration Risk - the name economists give to the risk associated with the sensitivity of a bond's price to a one percent change in interest rates.
Federal Open Market Committee (FOMC) - the branch of the Federal Reserve System (FRS) that determines the direction of monetary policy specifically by directing open market operations (OMO).
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.
High Yield (HY) - high-yield bonds (also called junk bonds) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds are more likely to default, so they must pay a higher yield than investment-grade bonds 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.
Exchange Traded Fund (ETF) - an exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock.
Federal Family Education Loan Program (FFELP) - a program that worked with private lenders to provide education loans guaranteed by the federal government.
Business Development Program (BDC) - an organization that invests in small- and medium-sized companies as well as distressed companies.
Job Opening and Labor Turnover Survey (JOLTS) Report - is a monthly report by the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor counting job vacancies and separations, including the number of workers voluntarily quitting employment.
Sifma - The Securities Industry and Financial Markets Association (SIFMA) is a not-for-profit trade association that represents securities brokerage firms, investment banking institutions, and other investment firms.
Duration - A calculation of the average life of a bond (or portfolio of bonds) that is a useful measure of the bond's price sensitivity to interest rate changes. The higher the duration number, the greater the risk and reward potential of the bond.
Trust Preferred Securities (TruPS) - hybrid securities issued by large banks and bank holding companies (BHCs) included in regulatory tier 1 capital and whose dividend payments were tax deductible for the issuer.
Treasury Inflation-Protected Securities (TIPS) - are a type of Treasury security issued by the U.S. government. TIPS are indexed to inflation to protect investors from a decline in the purchasing power of their money. As inflation rises, rather than their yield increasing, TIPS instead adjust in price (principal amount) to maintain their real value. The interest rate on a TIPS investment is fixed at the time of issuance, but the interest payments keep up with inflation because they vary with the adjusted principal amount.
You should carefully consider the investment objectives, potential risks, management fees, charges and expenses of the fund before investing. The fund's prospectus contains this and other information about the fund and should be read carefully before investing. You may obtain a current copy of the fund's prospectus by calling 1-800-544-6060.
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.
Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. There is no guarantee that this, or any, investing strategy will succeed.
Diversification does not ensure a profit or guarantee against loss.
Yorktown funds are distributed by Ultimus Fund Distributors, LLC. There is no affiliation between Ultimus Fund Distributors, LLC and the other firms referenced in this material.