A Quarter Review
While second-quarter market moves appear modest on the surface—10-year Treasury yields rose just 2 basis points, and investment-grade credit spreads tightened by 11 basis points—the intra-quarter volatility was anything but. The Liberation Day tariffs in early April shocked markets, driving a sharp equity selloff that briefly brought the S&P 500 near bear market territory. The bond market response was more nuanced: with short-term yields falling on growth concerns and long-end yields rising with inflation fears. Corporate credit also reacted strongly, with spreads widening sharply to just under 120 basis points, the highest level since 2023, before retreating later in the quarter as economic data showed stable growth and slower than expected inflation.
Performance Summary
The Johnson Core Fixed Income Strategy returned 1.53% net of fees in the second quarter, outperforming the Bloomberg U.S. Aggregate Bond Index, which rose 1.21%. The Strategy’s overweight to corporate bonds was the primary driver of outperformance. This was further enhanced by our tactical addition to credit during April’s market dislocation. While investment-grade spreads tightened 11 basis points over the full quarter, they finished 36 basis points tighter from their April peak. Sector allocation within corporates also added value. Our overweight to banks and financials outperformed the broader corporate universe, particularly compared to industrial and utility names. Duration had a negligible impact on relative performance, as the 10-year yield ended the quarter essentially unchanged. However, our underweight to the long end of the curve proved beneficial amid continued steepening.
Market Outlook and Portfolio Positioning
Looking ahead, the Strategy remains positioned for a balanced environment. While credit valuations have been compressed, the likelihood of a tariff-driven recession has diminished. As a result, we continue to maintain the additional credit exposure initiated in April. Interest rates remain rangebound but elevated by historical standards. We continue to hold a modest duration overweight versus the benchmark, expressed through a more bulleted yield curve structure, which we believe better balances interest rate risk. We believe the yield curve is likely to remain steep and continue to hold less exposure to the long-end of the yield curve as a result. Although trade policy briefly receded from the headlines, it remains a key risk factor that could re-emerge in the second half. As always, we remain committed to preserving capital, providing consistent income, and maintaining stability, especially in periods of heightened uncertainty.
Our primary objective across all duration mandates is to outperform the market with comparable volatility by utilizing our proprietary and unique Quality Yield approach and the deep experience and continuity of our investment team. For more information on our products and services, please contact a member of our Sales & Client Service Team at 513.389.2770 or info@johnsonasset.com.
Published 07/22/2025
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 June 30, 2025 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 weighed 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.
