A Quarter Review
It was a quiet finish to an otherwise solid year in the bond market. The Federal Reserve delivered its third and final interest rate cut of the year in December, despite growing disagreement among FOMC members. As a result, short-term rates fell modestly, while long-term interest rates edged slightly higher. Intermediate corporate bond spreads widened 4 basis points but have remained tightly rangebound following the market volatility around April’s “Liberation Day.” Economic data has started to be released following the prolonged government shutdown, though the reliability of some data points may have been impacted. Notably, the unemployment rate for October will not be reported. November’s employment report highlighted a weaker job market, with the unemployment rate rising to a cycle high of 4.6%, but the market mostly shrugged it off. Similarly, the November CPI report showed lower-than-expected inflation, which was dismissed as an anomaly due to missing October inflation data. Despite the noisy fall data, we continue to believe that inflation is slowly moderating, while the labor market is gradually softening.
Performance Summary
The Johnson Intermediate Fixed Income Strategy returned 1.18% net of fees during the fourth quarter, slightly underperforming the Bloomberg Intermediate Government/Credit Index, which rose 1.20%. Positive contributions to the Strategy’s relative performance over the quarter were an overweight to corporate securities and modestly long relative duration positioning. The Strategy’s out of benchmark MBS position was also a positive contributor to relative performance as index MBS spreads tightened 9 basis points during the quarter. Yield curve positioning was the primary detractor during the quarter. The Strategy’s overweight to 7-year key rate duration was a drag on relative performance as the front-end of the curve outperformed more intermediate term maturities.
The fourth quarter capped off a strong year for the Johnson Intermediate Fixed Income Strategy. For the full year, the Strategy returned 7.36% net of fees, outperforming the Bloomberg Intermediate Government/Credit Index by 39 basis points. The drivers of full-year relative performance were consistent with those of the fourth quarter, with the overweight to high-quality corporate securities being the primary contributor. The Strategy’s modest duration overweight throughout the year was also a positive contributor as intermediate rates fell across the curve in 2025. The Strategy’s out of benchmark allocation to Agency MBS was an additional tailwind as Agency MBS generated excess returns of 171 basis points in 2025, marking their best performance since 2010.
Market Outlook and Portfolio Positioning
As we turn our attention to the year ahead, we believe our high-quality investment approach is well positioned for the current environment. While late-year economic data was disrupted by the government shutdown, most indicators of labor market activity continue to point to a subdued pace of hiring. This backdrop should allow the Federal Reserve to continue lowering interest rates toward its estimate of neutral, around 3%.
Although credit spreads remain tight, our high-quality security selection discipline positions the Strategy well for potential volatility. Beyond macroeconomic factors, one potential catalyst for wider spreads could be increased supply in the investment-grade market. As hyperscalers increasingly turn to the bond market to finance capital expenditures, credit investors may start to demand a higher spread premium to Treasuries. Should that dynamic play out, the Strategy’s underweight to technology names with very tight spreads should be beneficial.
As always, we remain committed to delivering high-quality fixed income portfolios designed to provide consistency and stability across a wide range of market environments.
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 01/27/2026
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 December 31, 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 Intermediate Fixed Income 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 securities with an intermediate average duration, benchmarked against the Bloomberg U.S. Intermediate G/C Index. The Bloomberg U.S. Intermediate G/C Index measures the performance of U.S. Dollar denominated U.S. Treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years. 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.
