A Quarter Review
It was a fairly quiet quarter in the bond market, despite the Fed’s decision to lower rates by 25 basis points at its September meeting. While interest rates moved very modestly during the quarter, the strong year-to-date rally is proof that the Fed’s move was highly anticipated and mostly priced in. Investment grade credit spreads tightened 10 basis points–a somewhat impressive rally given how tight spreads were to start the quarter. As we look toward the final quarter of the year, the bond market is likely to remain focused on the pace and magnitude of Fed easing from here.
Performance Summary
The Johnson Core Fixed Income Strategy returned 2.00% net of fees in the third quarter, in line with the Bloomberg U.S. Aggregate Bond Index, which gained 2.03%. Relative results benefited primarily from the portfolio’s credit emphasis, as spreads tightened by 10 basis points. Sector allocation was also additive, with utilities outperforming both industrials and financials. These positives were partially offset by security selection, as lower-quality and more cyclical issuers outperformed. Yield curve structure provided an additional modest tailwind, as the curve flattened modestly over the quarter. Overall, the absence of significant interest rate or credit spread volatility contributed to relatively muted relative performance.
Market Outlook and Portfolio Positioning
As we enter the final quarter of the year, the Federal Reserve is likely to remain a key driver of markets. Bond market pricing currently implies a year-end Fed Funds rate of 3.63%, reflecting two 25-basis-point cuts—precisely in line with the Fed’s median “dot” forecast. Such alignment between the market and the Fed is somewhat unusual, underscoring the clarity of expectations for monetary policy over the near term. Looking beyond the next quarter, we will be closely monitoring the interaction of inflation and employment data. Further softening in the labor market could justify more rapid or aggressive easing than currently expected, while persistent inflation might constrain the Fed’s ability to deliver even modest rate cuts. Amid these uncertainties, we remain attentive to the signals from a softening labor market. With credit and equity valuations already elevated, we believe our disciplined, high-quality investment approach positions portfolios to capture upside while providing protection against potential volatility.
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 10/21/2025
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 September 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.
