Short Term Bond Fund
The formal signing of the U.S.-Iran memorandum of understanding in Geneva was the headline event of June. The 14-point interim agreement extends the ceasefire for 60 days, commits both sides to unrestricted shipping through the Strait of Hormuz, includes an Iranian pledge not to pursue nuclear weapons, and opens negotiations on enrichment, sanctions relief, and humanitarian aid. Oil prices declined roughly 20% over the month as the agreement removed a significant layer of supply risk. The ceasefire process has not been entirely smooth, with sporadic incidents between the various parties underscoring the fragility of the arrangement, but the broader diplomatic trajectory appears intact. President Trump characterized the deal as concluded while cautioning that Iran would need to demonstrate compliance before economic engagement could be considered.
Kevin Warsh chaired his first FOMC meeting on June 17th, and the tone was unmistakably hawkish. The Committee held the fed funds rate at 3.50-3.75% on a unanimous vote but delivered a notably concise statement that dropped all forward guidance on the policy path, a deliberate choice that Warsh framed as a new approach to communication. The statement pledged that the Committee "will deliver price stability" and acknowledged that inflation remains elevated relative to the 2% goal, in part reflecting supply shocks including energy. The updated Summary of Economic Projections revealed a sharp upward revision to inflation forecasts, with the median headline PCE projection for 2026 raised to 3.6% and core to 3.3%. Nine of eighteen participants now project at least one rate increase this year, with five of those expecting two hikes, making the median dot essentially a coin flip between holding steady and hiking once. The unemployment rate forecast was nudged down to 4.3%. The front end of the yield curve sold off immediately following the press conference.
Inflation data continued to worsen. The May CPI showed headline prices rising 0.5%, pushing the twelve-month rate to 4.2%, the highest since April 2023, driven by another surge in gasoline prices. Core CPI advanced 0.2%, nudging the annual rate to 2.9%. While the core reading offered modest relief, it was helped by a decline in motor vehicle insurance, and the three-month annualized headline rate was running above 8%. Producer prices were considerably worse: headline PPI rose 1.1%, lifting the twelve-month rate to 6.5%, and core PPI climbed 0.8%, with the annual rate reaching 5.1%. Three-month annualized PPI was running above 12%. The May PCE data, released at the end of the month, showed headline prices up 0.4% and core up 0.3%, pushing the year-over-year rates to 4.1% and 3.4% respectively. Core services excluding housing, the measure most watched for evidence of broad-based price pressure, rose 0.5% in May and is running at a 4.0% annualized pace over the prior three months. The ECB also hiked rates during the month, underscoring that the inflation challenge is global in scope.
The labor market strengthened further. May nonfarm payrolls rose 172,000, well above expectations, and prior months were revised substantially higher, with March now at 214,000 and April at 179,000. The three-month average stands at 188,000, a marked acceleration from the roughly 10,000 per month pace that characterized 2025. Job creation was broad-based, led by leisure and hospitality, healthcare, and local government. The unemployment rate held at 4.3%. Wage growth remained moderate and is not currently a driver of inflation pressures. First-quarter real GDP was revised up to 2.1% from 1.6%, though consumer spending was revised lower, and the stronger headline reflected less inventory depletion and smaller import growth. Corporate profits were revised meaningfully higher. Capital goods orders for May were strong and ISM manufacturing rose to a four-year high, while ISM services activity also improved. Overall, the growth and employment data argue against any near-term easing and are consistent with the hawkish shift in the Fed's projections.
The Treasury curve bear-flattened during June, with the front end selling off notably while longer-dated maturities were little changed. The move was driven by the hawkish repricing around the Fed meeting and the strengthening labor data, which pushed short-term yields higher even as falling oil prices tempered longer-term inflation concerns. The 2s10s slope compressed meaningfully. Credit spreads widened across the quality spectrum, reversing much of May's tightening. Investment grade spreads edged slightly wider and agency MBS spreads were little changed.
Within Short Term Bond Fund, we maintained a cautious posture throughout the month. The hawkish tone from Warsh's inaugural meeting, combined with inflation readings that remain well above the Fed's target on every measure, reinforces our emphasis on high-quality, shorter-duration holdings. We added selectively to investment grade corporates where the modest spread widening offered improved entry points. Agency mortgage positions were held steady with spreads essentially unchanged. Duration remains aligned with the peer group. Liquidity is robust. While the Iran agreement is a welcome development that should eventually ease energy-related price pressures, the breadth of inflation across core services, producer costs, and consumer prices suggests that the policy environment has become more restrictive, not less, and the risk of rate hikes later this year is real.
Bond Fund
June's most consequential development was the formal signing of a 60-day memorandum of understanding between the United States and Iran in Geneva. The 14-point agreement extends the ceasefire, reopens the Strait of Hormuz to unrestricted commercial shipping, obliges Iran to forgo nuclear weapons development, and establishes a framework for negotiations covering enrichment, sanctions, and humanitarian access. Oil prices dropped approximately 20% over the month in response, a significant reversal that begins to unwind part of the supply-driven inflation shock that has persisted since the conflict began. Isolated skirmishes between the parties have tested the ceasefire at points during the month, but the accord has held and the diplomatic momentum appears genuine, even as the transition from interim framework to durable resolution will require sustained engagement.
Chair Warsh's debut at the helm of the Federal Reserve set a decidedly hawkish tone. The FOMC held rates steady at 3.50-3.75% in a unanimous decision, but the accompanying statement was strikingly brief, contained no forward guidance, and centered on a blunt commitment to deliver price stability. Warsh announced that the Fed has abandoned forward guidance as a policy tool, a marked departure from the communication approach of recent years. The updated projections were striking: median headline and core PCE forecasts for 2026 were raised to 3.6% and 3.3% respectively, well above the March estimates. Half of the participants now see at least one rate hike this year, with several projecting two, making the median dot for year-end essentially a split between no change and one increase. One participant still projected a cut. The unemployment forecast edged down to 4.3%. Markets reacted swiftly, with the front end of the yield curve selling off sharply in the moments following the press conference.
The inflation data released throughout June painted an increasingly uncomfortable picture. May headline CPI rose 0.5%, propelled by a 7% jump in gasoline prices, bringing the year-over-year rate to 4.2%, the highest reading since April 2023. Core CPI was somewhat more contained at 0.2%, with the annual rate edging up to 2.9%, though the three-month headline pace exceeded 8% on an annualized basis. The producer side was worse: May headline PPI surged 1.1%, pushing the annual rate to 6.5%, while core PPI rose 0.8%, lifting the twelve-month pace to 5.1%. Three-month annualized headline PPI exceeded 12%. The PCE data released late in June confirmed the trend: the headline index advanced 0.4% in May with the core measure up 0.3%, bringing the annual rates to 4.1% and 3.4%. Core services excluding housing, the gauge most closely watched for signs of entrenched price pressure, advanced 0.5% and is running near 4.0% at a three-month annualized rate. The European Central Bank also raised rates during the month, reflecting the global nature of the inflation challenge. University of Michigan inflation expectations moderated somewhat, with the one-year measure declining to 4.6% and the medium-term measure falling to 3.4%, a small positive amid otherwise discouraging readings.
Employment data reinforced the picture of a resilient economy. May nonfarm payrolls surged 172,000, well above consensus, and revisions to the prior two months added a further 93,000 jobs, bringing March to 214,000 and April to 179,000. The three-month average is now running near 190,000, a pronounced acceleration from the anemic pace of 2025. Gains were broad, led by healthcare, the hospitality sector, and local government hiring. Unemployment was unchanged at 4.3% and aggregate labor income growth remained healthy, providing a partial offset to the squeeze from higher energy costs. On the growth front, the first-quarter GDP estimate was lifted to 2.1% from 1.6%, reflecting stronger corporate profits and less inventory depletion than initially measured, though consumer spending growth was marked lower. ISM manufacturing climbed to a four-year high in May and ISM services activity strengthened, with new orders rising. Capital goods orders were robust, underscoring that the investment boom, driven in part by AI-related spending and accelerated depreciation incentives, continues to support the expansion.
Bond markets reflected the tension between worsening inflation data and improving geopolitical sentiment. Treasuries sold off in a bear-flattening pattern, with the front end leading the move higher as the hawkish Fed meeting and strong employment data repriced rate expectations, while the long end was roughly unchanged as declining oil prices provided an offset. The flattening was evident across the curve, with the 2s10s and 5s30s slopes both compressing. Credit conditions deteriorated after two months of improving sentiment. High yield spreads widened, led by pronounced weakness in CCC-rated credits, while investment grade spreads edged only slightly wider. Energy-related high yield issuers saw spreads widen as the decline in oil prices, while beneficial for the broader economy and inflation, weighed on revenue expectations for the sector. Agency MBS spreads were roughly unchanged.
In Yorktown Bond Fund, positioning reflects the evolving balance of risks. High yield allocations remain concentrated in shorter-duration, higher-quality names where the carry continues to offer compensation for risk, and we have been cautious in adding to lower-quality credits given the widening in spreads and elevated new issuance. We added selectively to investment grade corporates during the month. Agency mortgage holdings were maintained with spreads little changed. Portfolio liquidity remains strong and duration sits near the category average. The Iran agreement, if it holds, should progressively reduce the energy-driven component of inflation over the coming months, but the persistence of elevated core services inflation, producer price acceleration, and a labor market that is gaining rather than losing momentum all point to a Federal Reserve that is more likely to tighten further than to ease. Chair Warsh's abandonment of forward guidance adds a new dimension of uncertainty that argues for maintaining flexibility and ample dry powder.
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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.