Sep 2023

Unlocking the Potential in Short-Term Bond Funds - Sept. 2023

Fixed income investors endured steep drawdowns in calendar year 2022 after decades-high
inflation prints drove a significant policy-tightening campaign by the Fed, fueling a rise in interest
rates across the Treasury curve. The traditional tool of investor diversification, a 60-40 portfolio
of equities and fixed income, generally failed to limit downside as negative performance in fixed
income was mirrored by drawdowns in equity markets. Going forward, the combination of tight
monetary policy, inflation above the Fed’s 2% target and elevated recession concerns has caused
investors to seek refuge in money market funds and Treasury bills, with both yielding nearly
5.5%. As of Sept. 30, assets in money market funds had grown approximately $910 billion yearto-
date, a 20% gain, to an all-time high of $5.6 trillion.