--- title: October 26' Monthly Commentary description: Explore the impact of geopolitical tensions and inflation trends on bond markets in August, as well as strategies for navigating volatility. image: https://blog.yorktownfunds.com/hubfs/october_26_monthly_commentary.jpg --- [Investor Login](https://secure.ultimusfundsolutions.com/PAWeb/Logins/Login.aspx?planname=api&user=shareholder) [Contact Us](https://www.yorktownfunds.com/contact-us/) [![Yorktown Funds](https://blog.yorktownfunds.com/hs-fs/hubfs/raw_assets/public/Yorktown_Funds_November2022/images/Yorktown-Logo-Dark.png?width=565&height=361&name=Yorktown-Logo-Dark.png "Yorktown Funds")](https://www.yorktownfunds.com/) - [Mutual Funds](https://www.yorktownfunds.com/mutual-funds/) - [Short Term Bond Fund](https://www.yorktownfunds.com/mutual-funds/short-term-bond-fund/) - [Bond Fund](https://www.yorktownfunds.com/mutual-funds/bond-fund/) - [Growth Fund](https://www.yorktownfunds.com/mutual-funds/growth-fund/) - [Small Cap Fund](https://www.yorktownfunds.com/mutual-funds/small-cap-fund/) - Advisor Resources - [Forms & Applications](https://www.yorktownfunds.com/forms-applications/) - [All Fund Literature](https://www.yorktownfunds.com/all-fund-literature/) - [About Us](https://www.yorktownfunds.com/about-us/) - [About the Firm](https://www.yorktownfunds.com/about-us/#about-the-firm) - [Investment Process](https://www.yorktownfunds.com/about-us/#investment-process) - [Team](https://www.yorktownfunds.com/about-us/#team) - Insights - [Market Insights](https://blog.yorktownfunds.com/insights) - [Mutual Funds](https://www.yorktownfunds.com/mutual-funds/) - [Short Term Bond Fund](https://www.yorktownfunds.com/mutual-funds/short-term-bond-fund/) - [Bond Fund](https://www.yorktownfunds.com/mutual-funds/bond-fund/) - [Growth Fund](https://www.yorktownfunds.com/mutual-funds/growth-fund/) - [Small Cap Fund](https://www.yorktownfunds.com/mutual-funds/small-cap-fund/) - Advisor Resources - [Forms & Applications](https://www.yorktownfunds.com/forms-applications/) - [All Fund Literature](https://www.yorktownfunds.com/all-fund-literature/) - [About Us](https://www.yorktownfunds.com/about-us/) - [About the Firm](https://www.yorktownfunds.com/about-us/#about-the-firm) - [Investment Process](https://www.yorktownfunds.com/about-us/#investment-process) - [Team](https://www.yorktownfunds.com/about-us/#team) - Insights - [Market Insights](https://blog.yorktownfunds.com/insights) ![](https://blog.yorktownfunds.com/hubfs/october_26_monthly_commentary.jpg) [Short Term Bond Fund](https://blog.yorktownfunds.com/insights/tag/short-term-bond-fund), [Bond Fund](https://blog.yorktownfunds.com/insights/tag/bond-fund) # October 26' Monthly Commentary [Back to Market Insights](https://blog.yorktownfunds.com/insights) ## Short Term Bond Fund The Federal Reserve raised the Fed Funds rate by 25 basis points to a target range of 3.75-4.00% at its September meeting, the first increase since July 2023, but the quarter-point hike did little to settle a Treasury market that sold off roughly 50 to 60 basis points across the curve over the month. The decision was unanimous. The accompanying statement was characteristically brief, noting that inflation "remains elevated" and that "today's policy action will support a timelier return to the Committee's 2 percent goal." The updated Summary of Economic Projections showed a median expectation of one additional hike before year end, with twelve of eighteen participants projecting a total of two increases in 2026 and four projecting three. Chair Warsh again declined to submit projections. In his press conference, he noted that he would be "hard pressed to describe financial conditions as restrictive," a view he said was widely shared on the Committee, and stated that the "predominant" focus is inflation. He rejected the idea that achieving price stability requires weakening the labor market. The Iran conflict escalated further during the month. Strikes resumed early in the month, with several tankers hit. The conflict expanded beyond Hormuz as drone attacks damaged Saudi Arabia's East-West pipeline, disrupting crude deliveries to Europe and causing a spike in regional prices. Saudi Aramco moved to restore partial capacity within days and announced plans for full restoration over roughly six weeks. Iran's president declared that freedom of navigation through the Strait would not be permitted while sanctions and the blockade remain. Oil prices rose modestly over the month. Inflation data showed limited progress. The August CPI came in slightly above expectations, with core prices rising 0.3% and the annual rate edging down to 2.4%. However, the super core measure of services excluding energy and rents jumped 0.5%, driven in part by a surge in wireless phone services. The PPI was in line with forecasts but showed no improvement, with headline prices rising 0.4% and the annual rate climbing to 5.4%. The August PCE report, released at the end of the month, was more encouraging following a methodological revision: core prices rose 0.2% and the twelve-month rate printed at 3.0%, aided by a downward revision to July. The labor market was firmer than expected, with August nonfarm payrolls rising 162,000 and prior months revised higher. The unemployment rate held at 4.1% even as participation rebounded. Second-quarter GDP was revised up to 2.2%, and third-quarter growth is tracking well above that pace. The severity of the rate selloff was compounded by resilient growth data, sticky inflation, energy disruption, U.S. fiscal concerns, and a Bank of Japan rate hike to its highest level since 1995, which triggered fears of capital repatriation out of Treasuries. The long end saw somewhat smaller increases than the front and intermediate portions of the curve, producing a pronounced flattening. Rate volatility surged. Investment grade spreads edged slightly wider and agency MBS spreads widened. In Short Term Bond Fund, the rate selloff reinforced our emphasis on quality and liquidity. We trimmed duration modestly and maintained high-quality positioning throughout. Agency mortgage and agency debt exposures were reduced as spreads widened. The September hike confirmed that the tightening cycle has resumed, and the median projection of another increase before year end suggests the Fed isn’t finished. The encouraging PCE revision offers a glimmer of hope on inflation, but the breadth of price pressures, the strength of the economy, and the ongoing geopolitical disruption all point to a challenging environment for fixed income. ## Bond Fund The Federal Reserve delivered its first rate increase since July 2023, raising the Fed Funds rate by a quarter point to 3.75-4.00% in a unanimous decision, but September experienced a ferocious selloff in Treasuries. Yields surged roughly 50 to 60 basis points across the front and intermediate portions of the curve over the course of the month. The statement offered no forward guidance beyond noting that inflation remains elevated and the hike will support a timelier return to 2%. The Summary of Economic Projections showed most participants favoring at least one more increase this year, with twelve projecting a total of two hikes in 2026 and four seeing three. Chair Warsh, who again did not submit projections, described the Committee's focus as "predominantly" on inflation and said he would be "hard pressed" to call financial conditions restrictive. He explicitly rejected the notion that achieving price stability requires engineering a weaker labor market. Geopolitical risk intensified as the Iran conflict broadened in scope. Strikes resumed at the start of the month and escalated on September 9th with attacks on tankers. More significantly, drone strikes damaged Saudi Arabia's East-West pipeline, halting a critical alternative route for crude deliveries to Europe and causing regional prices to spike. Saudi Aramco began working to restore partial capacity and announced full restoration within six weeks. Iran's president laid down conditions for any resumption of talks, including an immediate end to the naval blockade, but talks fizzed out by month end. Oil prices ended modestly higher, though the expansion of the conflict beyond the Strait of Hormuz to include critical infrastructure represents a troubling escalation. The inflation picture was mixed. August core CPI rose 0.3%, slightly above expectations, bringing the annual rate down to 2.4%, but the super core measure surged 0.5%. The August PPI offered no comfort, with headline prices up 0.4% and the twelve-month rate rising to 5.4%. The PCE report at month end provided some relief: a methodological revision brought the twelve-month core rate down to 3.0%, with July's monthly reading revised lower. Whether this reflects genuine deceleration or largely a measurement adjustment remains to be seen. The ECB also raised rates during the month, citing persistent inflation from the conflict. On the growth side, the economy continues to run hot. August nonfarm payrolls surged 162,000 with upward revisions to prior months, and participation rebounded. Second-quarter GDP was revised up to 2.2%, and third-quarter growth is tracking near 3%, driven by strong consumer spending and robust business equipment investment. The selloff in rates was one of the most severe in memory, reflecting the convergence of fiscal worries, strong economic data, Iran, a growing conviction that a single quarter-point move was insufficient, and a Bank of Japan rate hike that raised the prospect of institutional repatriation out of Treasuries. Long-end yields rose by a somewhat smaller magnitude but still climbed substantially, with the 5s30s slope flattening sharply. Rate volatility surged to its highest level since March. Credit spreads widened meaningfully, with high yield out roughly 50 basis points. Energy-related spreads widened as the Saudi infrastructure disruption weighed on the sector. Investment grade spreads moved only slightly wider. Agency MBS spreads widened moderately. In Yorktown Bond Fund, we navigated the selloff with duration below the category average, which cushioned the impact of the rate move. High yield allocations were trimmed further given the magnitude of spread widening, and we remain focused on higher-quality names. Investment grade corporate exposure was maintained. Portfolio liquidity is strong. The resumption of tightening marks a new phase for fixed income markets, and with the median projection pointing to another hike before year end and Chair Warsh signaling no tolerance for elevated inflation, we expect the environment to remain volatile. The methodological revision to PCE is a modest positive, but the underlying trend in price pressures has yet to convincingly turn.   [VIEW OUR PERFORMANCE HERE](https://www.yorktownfunds.com/mutual-funds/)   Past Performance is no guarantee of future results. 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. [Click to View Prospectus](https://yorktownfunds.com/advisors/fund-documents/)   ***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. ### Subscribe to Insights [Previous September 26' Monthly Commentary](https://blog.yorktownfunds.com/insights/september-26-monthly-commentary) [![Yorktown Funds](https://blog.yorktownfunds.com/hs-fs/hubfs/raw_assets/public/Yorktown_Funds_November2022/images/Logo-Horizontal-2-Color-Reversed-2048x345.png?width=2048&height=361&name=Logo-Horizontal-2-Color-Reversed-2048x345.png "Yorktown Funds")](http://3.218.76.184/) Email: [info@yorktownfunds.com](mailto:info@yorktownfunds.com) Phone: [(800) 544-6060](tel:8005446060) © Copyright 2022 Yorktown Management & Research Co. 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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 [800-544-6060](tel:18005446060).*** *Past performance is no guarantee of future results. The investment return and principal value of an investment in the Funds 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 be successful.* *Yorktown Funds are distributed by Ultimus Fund Distributors, LLC (member [FINRA](https://www.finra.org/#/)/[SIPC](https://www.sipc.org/)). Yorktown Funds and Ultimus Fund Distributors, LLC are not affiliated.* *Check the background of Ultimus Fund Distributors, LLC on FINRA’s BrokerCheck: [brokercheck.finra.org](http://brokercheck.finra.org/).* ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "John Tener, CFA", "url" : "https://blog.yorktownfunds.com/insights/author/john-tener-cfa" }, "dateModified" : "2026-10-28T13:45:00.406Z", "datePublished" : "2026-10-28T13:45:00.000Z", "headline" : "October 26' Monthly Commentary", "image" : [ "https://blog.yorktownfunds.com/hubfs/october_26_monthly_commentary.jpg" ], "mainEntityOfPage" : { "@id" : "https://blog.yorktownfunds.com/insights/october-26-monthly-commentary", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://blog.yorktownfunds.com/hubfs/Logo%20Horizontal%20Full%20Color-1.png" }, "name" : "Yorktown Management & Research Co" } } ```