BRAMSHILL BLOG:  From the Desk of Bramshill Investments

In February, 10-year US treasury yields spiked +34bps and the Bloomberg US Aggregate Index returned -1.41% on the month. The Bramshill Income Performance Strategy returned -0.62% on the month, putting our YTD return at +0.52%. 

If you recall, we deployed significant capital in October 2023 out of short-term treasuries into long duration investment grade corporates.  In November and December, we maintained caution around taking more interest rate risk because of the swift rally in yields as the 10-year treasury yield reached 3.80%, and when many were calling for up to seven Fed rate cuts in 2024.  At this time, the Fed seems poised to maintain its restrictive policies until the US economy shows signs of a meaningful slowdown and inflation subsides even further.  In our opinion, February’s interest rate correction, represented another buying opportunity.   We reduced our cash/short-term treasury allocation from approximately 12% to 8% of the Strategy (this liquidity allocation is down from 45% in August 2023).  The most substantial asset class shift we have made in the past few months has been out of short-term treasuries and into investment grade corporates.  This allocation increased last month from approximately 34% to 36% of the Strategy.  This is up from 16% at end of Q323.  We added a new position in WFC 2.164 ‘26, short duration IG which trades >6% yield to ‘26, or becomes callable in one year at 5.70% to call.  We increased moderately our allocation to high yield corporates from approximately 10% to 11% as we added a new position in POST 6.25% secured bonds and increased exposure to a short duration liquid high yield ETF with 7.75% YTW, and 2.5y duration.  We took profits in certain HY CEFs which had rallied significantly in the past few months.  Our preferred allocation remained stable at approximately 28% of the portfolio, as we added small to our position in BAC 6.25% PFD, which we still find attractive at 6.5% yield to a ’24 call, and if not called floats at SOFR +397.  We also added to our LNC 9.25% PFD position.  Our exposure to municipals remained stable at approximately 6% of the Strategy. This allocation is currently all in CEF exposure. Our long duration treasury exposure was stable at approximately 11% of the Strategy.  If you recall, with credit spreads at the tighter end of the range, we had added to our treasury allocation when 30year treasury yields increased from 3.94% to 4.3% in late January.  We believe recent fixed income volatility has created more opportunities, and therefore, greater return potential for our Bramshill Income Performance Strategy than we have seen over the past several years.