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 Short Duration Fixed Income Strategy returned 1.46% net of fees in the second quarter, outperforming the ICE BofAML US Corporate and Government 1-3 Year Index which rose 1.26%. The Strategy’s primary drivers of outperformance during the quarter were its income advantage versus the index, as well as its overweight to the corporate bond sector. This was further enhanced by our tactical addition to credit during April’s market dislocation. While short duration investment-grade spreads tightened 6 basis points over the full quarter, they finished 35 basis points tighter from their April peak. Security selection within corporates also added value. The Strategy’s relatively long-of-benchmark duration positioning had a modestly positive impact on relative performance, as yields on the front end of the curve fell 15-20 basis points during the quarter.
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 exposure to the front end and the belly of the yield curve, which we believe better balances interest rate risk. We also continue to maintain an allocation to out-of-benchmark MBS, as our focus on stable cash flow, seasoned, and positively convex securities provides a high-quality yield enhancement to the portfolio. 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 Short Duration 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 short duration, investment grade taxable fixed income. The benchmark for this composite is the ICE BofA Merrill Lynch 1-3 Year G/C Index. The ICE BofA Merrill Lynch 1-3 Year Corporate/Government Bond Index includes publicly issued U.S. Treasury debt, U.S. government agency debt, taxable debt issued by U.S. states and territories and their political subdivisions, debt issued by U.S. and non-U.S. corporations, non-U.S. government debt and supranational debt. 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 o ce 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.
