Grinding Out Gains:
The second quarter echoed the first quarter of the year as lower-rated credit and floating-rate sectors outperformed traditional sectors, driven primarily by high interest income and lower interest-rate sensitivity. Treasury rates rose across tenors in the period, as the two-year and 10-year Treasury yield rose 13 basis points (bps) and 20 bps, respectively. Credit spreads were mixed, with higher credit quality experiencing modest widening while lower-rated credit generally underwent spread compression, particularly within areas of securitized credit, contributing to outperformance relative to corporate bonds in the second quarter.
DoubleLine expects front-end rates to remain susceptible to the Fed's signaling of the timing and speed of normalizing monetary policy from restrictive levels. We believe the Fed is likely to cut this year, which would support shorter-duration yields and continue to favor a curve-steepening bias. Having generally migrated credit exposures higher in credit quality over the past year, and complementing credit exposure with Treasury and Agency MBS exposures, the team remains optimistic for attractive risk-adjusted returns in our fixed income strategies through the second half of 2024.
