The conflict with Iran remained the central force shaping markets in April, though sentiment shifted considerably over the course of the month. Oil prices spiked above $112 per barrel early in the period as the U.S. blockade of the Strait of Hormuz continued and President Trump's rhetoric toward Tehran intensified. However, a two-week ceasefire announced on April 7th, which included a temporary reopening of the Strait, prompted a sharp reversal in risk appetite. A subsequent 10-day ceasefire between Israel and Lebanon later in the month reinforced hopes that a broader diplomatic resolution might be within reach, and oil fell back to $84 per barrel by mid-month. However, prices reversed sharply again and ended April near $105, not far from where they began, as the underlying conflict remains unresolved and the strait is not open to commercial traffic.
The labor market recovered from its February stumble. March nonfarm payrolls surprised to the upside at 178,000, reversing the prior month's decline, which was revised further down to a loss of 133,000. The rebound was broad-based but owed a significant portion to the return of healthcare workers following strikes that had depressed February figures. Private payrolls rose 186,000, with notable contributions from education and health services, leisure and hospitality, and transportation. The unemployment rate edged down to 4.3% from 4.4%, though this was driven by a shrinking labor force rather than robust household employment gains, as the participation rate slipped further to 61.9%. Wage growth was contained at 3.5% year-over-year. The underlying pace of job creation, stripping out weather and strike effects, appears to be running near the breakeven rate needed to hold unemployment steady.
First-quarter GDP came in at 2.0% annualized, slightly below expectations. The composition was more constructive than the headline suggested. Consumer spending advanced at a more modest 1.6% rate, funded entirely by income growth as the savings rate held steady at 4.0%. A widening trade deficit subtracted over a percentage point from growth, while government spending remained subdued, with federal outlays still not fully recovered from the earlier shutdown. Nominal GDP growth was a robust 5.6%, a figure that on its own argues against monetary easing. Manufacturing data were positive, with the ISM index rising against expectations in March, though the prices paid component surged to its highest reading since 2022.
Inflation was the most consequential data story of the month. The March CPI showed headline prices jumping 0.9%, lifting the twelve-month rate to 3.3%, driven overwhelmingly by a 21% surge in gasoline prices. Core CPI rose a more restrained 0.2%, edging the annual rate up to 2.6%, though used vehicle prices and a large decline in prescription drug costs flattered the reading. On the producer side, the March PPI came in below expectations, but the components feeding into PCE were firmer than anticipated. The April 30th release of the PCE price data confirmed the trend: headline PCE rose 0.7% in March, pushing the twelve-month rate to 3.5%, and core increased 0.3%, lifting the annual pace to 3.2%. Most concerning were the three-month annualized figures, with headline PCE running at 5.6%, core at 4.4%, and core services excluding housing at 4.5%.
The Federal Reserve held rates steady at 3.50-3.75% at its April meeting, but the decision was notable for its four dissents, the most since October 1992. Governor Miran again dissented in favor of a cut, while Presidents Hammack, Kashkari, and Logan voted against language they viewed as retaining an easing bias, effectively signaling that rate increases are as plausible as cuts from here. The statement acknowledged that inflation is elevated, attributing part of the increase to the rise in global energy prices. Minutes from the March meeting, released earlier in the month, had already revealed that "many" participants believed rate hikes could be warranted if inflation remained elevated. In what was his final press conference as Chair, Powell noted that the number of participants viewing a hike as equally likely as a cut had grown since March. He characterized policy as well positioned but made clear the Committee would raise rates if necessary. Kevin Warsh's confirmation hearing reinforced expectations of a leadership transition.
Treasury yields drifted higher across the curve during April, with increases of roughly 5 to 10 basis points across maturities, as the last week of the month saw major UST selling. The curve flattened modestly. In credit, the tone was different from March's risk-off environment. Investment grade spreads tightened roughly 8 bps, reversing the prior month's widening, and high yield spreads compressed, fully retracing the March move. Agency MBS spreads also recovered, tightening around 10 bps.
Within Short Term Bond Fund, we took advantage of the credit conditions to modestly add to investment grade corporate exposure at spreads that had moved wider since the conflict. Agency mortgage holdings benefited from the tightening in MBS spreads and were maintained at current levels. Portfolio duration remains aligned with the peer group. Our posture continues to balance income generation with capital preservation. The underlying inflation trajectory, a Federal Reserve that is increasingly divided, and the looming leadership transition all counsel continued caution and ample liquidity.
April brought wild swings in geopolitical sentiment as the Iran conflict alternated between escalation and tentative steps toward de-escalation. Oil prices spiked above $112 per barrel in the opening days of the month amid a U.S. naval blockade of the Strait of Hormuz and aggressive rhetoric from the White House. A two-week ceasefire on April 7th, which temporarily reopened the strait to commercial shipping, triggered a broad relief rally across risk assets. Later in the month, a 10-day ceasefire between Israel and Lebanon further buoyed expectations of a diplomatic path forward, and oil briefly retreated to $84 per barrel by mid-April. Prices then reversed course and climbed back near $105 by month end, underscoring the persistent volatility surrounding the conflict and the still-uncertain status of the strait.
Employment conditions rebounded in March after February's contraction. Nonfarm payrolls increased by 178,000, well above consensus, though the strength was partially attributable to the resolution of healthcare labor strikes and a bounce back from unusually cold February weather. February's payroll decline was revised deeper, to a loss of 133,000, while January was marked up to 160,000. Private sector hiring surged by 186,000, led by gains in education and health services, leisure and hospitality, and goods-producing industries. The unemployment rate ticked down to 4.3%, but the improvement was superficial, reflecting a 396,000 contraction in the civilian labor force rather than stronger household employment. Labor force participation fell to 61.9%. Annual wage growth moderated to 3.5%, and the estimated underlying pace of job creation is running close to the breakeven level needed to stabilize the unemployment rate.
The advance estimate of first-quarter GDP showed the economy expanding at a 2.0% annualized rate, modestly below expectations. Consumer spending rose at a 1.6% rate, sustained by income growth with the savings rate unchanged at 4.0%. A sharply wider trade gap was the primary drag, subtracting over a percentage point from headline growth, while federal spending declined at a 4.5% annual rate. Nominal GDP grew at 5.6%, a pace that complicates the argument for easier monetary policy. On the manufacturing side, the ISM index rose in March against expectations of a decline, though the prices paid component jumped to its highest level since 2022.
Inflation moved higher as energy costs flowed through the data. March headline CPI surged 0.9%, propelled by a 21% increase in gasoline prices, and the annual rate jumped to 3.3% from 2.4%. Core CPI was more contained at 0.2% for the month, nudging the twelve-month rate to 2.6%, though this was aided by another decline in used vehicle prices and a sharp drop in prescription drug costs that may not be sustained. The March PPI surprised to the downside in aggregate, but the components relevant to the PCE calculation were firmer than initially assumed. The PCE report released on April 30th confirmed the deterioration: headline prices advanced 0.7%, bringing the year-over-year rate to 3.5%, and core rose 0.3%, lifting the annual pace to 3.2%. The more telling figures were the three-month annualized rates, where headline PCE was running at 5.6%, core at 4.4%, and core services excluding housing at 4.5. The University of Michigan's preliminary April reading showed one-year inflation expectations leaping to 4.8% from 3.8%, while medium-term expectations edged up to 3.4%.
The Federal Reserve left the fed funds rate at 3.50-3.75% at its April meeting, but the 8-4 vote was the most fractured since late 1992. Governor Miran again preferred a quarter-point cut, while three regional bank presidents dissented against language they viewed as preserving an implicit easing bias, effectively pushing the Committee toward a more neutral posture where rate increases carry as much weight as reductions. The statement attributed elevated inflation in part to the rise in global energy prices. Chair Powell, at what he indicated would be his final press conference, described policy as well positioned to respond in either direction. He acknowledged that the share of participants viewing a rate hike as equally likely as a cut had grown since March, and noted that the cumulative supply shocks from the pandemic, tariffs, and the energy crisis create compounding uncertainty for the inflation outlook. The release of the March meeting minutes earlier in April had already revealed that "many" officials saw a case for tightening if price pressures persisted. Looking ahead, Kevin Warsh's Senate confirmation hearing reinforced expectations of a change in Fed leadership.
Fixed income markets presented a split picture in April. Treasury yields moved moderately higher on net, with increases concentrated in the 5 to 10 bp range across the curve and a slight flattening bias. But the second half of the month featured a meaningful selloff. Credit markets, by contrast, staged a recovery. Investment grade spreads tightened close to 8 bps across the quality spectrum, with greater improvements in BBB-rated names. And high yield spreads compressed, led by a roughly 46 bp narrowing, as ceasefire developments reduced the probability of the most extreme disruption scenarios. Agency MBS spreads tightened approximately 10 bps, recouping the widening from March.
In Multi-Sector Bond Fund, we used the volatility in spread markets to selectively add exposure in areas where valuations remained attractive. High yield allocations continue to favor shorter-duration, higher-quality issuers, where carry remains compelling. Agency mortgage holdings benefited from the recovery in MBS spreads, and portfolio liquidity remains robust and duration is managed within category norms. The outlook warrants continued vigilance: while the ceasefire appeared to provide breathing room, inflation is running well above the Fed's target by most measures. Meanwhile, the central bank is visibly more divided than at any point in decades, and an imminent leadership change at the Fed introduces an additional dimension of policy uncertainty.
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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.