2025 May Portfolio Commentary

In May, 10-year US treasury yields spiked +24bps and the Bloomberg US Aggregate Index returned -0.72% on the month. The Bramshill Income Performance Strategy returned -0.39% on the month, putting our YTD return at +0.65%.

It seems as if every month there is a tug-of-war between interest rates moving higher or lower based on the uncertainty of tariff policy, fiscal policy, deregulation and consumer sentiment. While the yield on the 10-year treasury has traded in a range from approximately 4% to 4.80% during the last six months, the volatility has been extreme at times. We have been consistent with our message that inflation readings will likely remain muted as the economy continues to slow. While the impact of tariffs creates uncertainty, inflation is trending toward the Fed’s 2% target level. If the impact of a “restrictive” Fed (which is how they recently described their own current policy) continues to engender slower growth, Fed cuts in 2H25 are increasingly likely. We also believe the tariff impact will be similar to 2018-2019 when the first round of Trump tariffs on China were announced. Once such tariffs were fully implemented, the impact on growth spurred the Fed to pivot from tightening policy in 2018 to easing in 2019. As a result, in 2019, 10-year treasury yields declined by -77bps that year. In the current environment, we still have the view that tight credit spreads, especially in high yield and long duration preferreds, are not compensating investors for potential volatility and are vulnerable to equity volatility. Thus, we have largely avoided high yield corporates where our allocation remains less than 3% of the Strategy. In preferred securities, we moderately decreased exposure to C 4% PFD and we added to C 7% PFD as this structure is cheaper with better call protection. Our preferred exposure remains at approximately 18% of the Strategy, the majority of which is in fixed-reset structures with an average duration of approximately 3 years. These structures have held up extremely well in the recent rate volatility. We modestly increased our investment grade corporate exposure to 38% of the Strategy as we sold some RGA baby bonds and added to our utility junior subordinated allocation, mainly in NEE 6.375%. If you recall, we favor these recently issued structures of junior utility bonds with fixed coupons for 5-year or 10-year periods and include higher rate protection with coupon resets, in addition to lower rate protection with minimum coupon floors. Our municipal allocation is very limited at approximately 1% of the Strategy. Our allocation to short-term treasuries plus cash is now approximately 20% of the Strategy as this acts as a liquidity buffer. The combination of our short-dated investment grade corporate allocation plus our short-term treasuries and cash now total approximately 34% of the Strategy. While we believe the tariffs are a focus of the headlines, we believe the slowdown in the US economy which we highlighted back in early January has been accelerated by the uncertainty of policy for both businesses and consumers. We believe this will be the result of the economy significantly slowing, and thus beneficial for longer duration high quality US fixed income. For a further discussion of performance, positioning, and current views, please attend our next Quarterly Webinar scheduled for July 2, 2025.