Summary
- Market Backdrop: Q3 was challenging for fixed income, as geopolitical conflict lifted oil prices and renewed inflation concerns.
- Rates & Policy: The Fed delivered its first rate hike in several years and signaled at least one more. Treasury yields rose across the curve to multi-decade highs.
- Credit: Fundamentals remain solid, though investment grade spreads widened 6 bps.
- Performance: The Johnson Core Fixed Income Strategy returned-3.96% net, versus-3.51% for the Bloomberg US Aggregate.
- Drivers: Longer duration was the main headwind, partly offset by an underweight to Agency MBS during a very weak quarter for the sector.
- Outlook: With yields well above 5%, Core Fixed Income remains attractive, and those yields provide a cushion against uncertainty.
Video Transcript
Fixed income markets faced a challenging third quarter as ongoing geopolitical conflict contributed to higher oil prices and renewed inflation concerns.
As a result, the Federal Reserve delivered its first rate hike in several years and signaled its intention to raise rates at least one more time this year.
Treasury yields moved higher across the curve, pushing rates to multi-decade highs and weighing on bond returns.
Credit fundamentals remain solid, but investment grade spreads moved 6 basis points wider during the quarter.
As a result, the Johnson Core Fixed Income Strategy fell -3.96% after fees, compared to -3.51% for the Bloomberg US Aggregate Bond Index.
The primary driver of the modest underperformance was the strategy’s longer duration positioning as interest rates moved sharply higher across the yield curve.
While duration was a headwind, our underweight to Agency MBS was beneficial as the sector experienced one of its worst quarters on record when looking at combined total return and excess return.
Looking forward, we believe that Core Fixed Income remains an attractive asset class, with yields well above 5%.
While inflation, a strong economy, Fed Policy, and geopolitical concerns create uncertainty, current yields provide a meaningful cushion against a range of potential outcomes.
Thank you and please reach out to anyone at Johnson with any questions.
Published 11/06/2026
The Bloomberg U.S. Aggregate Bond Index is unmanaged, does not reflect the deduction of fees, transaction costs, or other expenses, and cannot be invested in directly. Index returns assume reinvestment of income. The index is shown for comparison only; the Strategy's holdings, sector weights, duration, and credit quality differ from the index, so its performance and volatility may differ materially. The commentary contains the opinions of Johnson Asset Management's investment team as of September 30, 2026. These opinions may change without notice and should not be read as investment advice or a recommendation to buy or sell any security or sector. Statements about the market outlook, interest rates, inflation, monetary policy, yields, or future return potential are forward-looking. They are based on current expectations and assumptions that may prove wrong, and actual results may differ materially. Higher current yields do not guarantee future returns. Bond prices generally fall when interest rates rise, and fixed income investments are subject to interest rate, credit, prepayment, and liquidity risk. Portfolio characteristics and positioning shown are as of the date noted and may change without notice. Johnson Asset Management (JAM) is a division of Johnson Investment Counsel, Inc. (“JIC”), an independent and privately owned Midwestern based investment advisory firm registered with the Securities and Exchange Commission. Johnson Asset Management manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, public and private retirement plans, and personal trusts of all sizes. It may also serve as sub-adviser for mutual funds. JIC’s fees are available upon request and may be found in our Form ADV Part 2A. Performance data quoted herein represents past performance. Past performance does not guarantee or indicate future results. All data is current as of September 30, 2026 unless otherwise noted. Returns and net asset value will fluctuate. To determine if this strategy is appropriate for you, carefully consider the investment objectives, risk factors, and expenses before investing. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing JIC’s strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by any Bank or any Bank affiliate, and MAY lose value, including possible loss of principal. Johnson Asset Management claims compliance with the Global Investment Performance Standards. The Institutional Core composite includes all fee-paying, fully discretionary, actively managed institutional fixed income portfolios with a minimum value of $500,000 and an investment objective of broad investment grade, taxable fixed income, benchmarked against the Bloomberg U.S. Aggregate Index. The US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. JAM’s policies for valuing portfolios, calculating performance and preparing compliant presentations, as well as a complete list of composite descriptions are available upon request. Please contact our office at 513.389.2770 or 3777 West Fork Road, Cincinnati, OH 45247. All returns reflect the reinvestment of investment income (dividends and/or interest) and capital gains. Valuations and returns are stated in U.S. dollars. Trade date accounting is used. Portfolio returns are calculated using time-weighted return methodology on a monthly basis. Net returns shown reflect gross performance less the highest fee schedule for this strategy. Actual client returns would also be reduced by brokerage commissions, custodial fees, and other client paid expenses detailed in JIC’s Form ADV Part 2A.
