Janet Rilling: 2026 Q1 Recap and Q2 Outlook

What stood out to you during the first quarter in fixed income?
What really stood out in the first quarter was how quickly the market moved from complacency to complexity. Prior to March, the market seemed to be settled in a very comfortable consensus on growth, monetary policy, and really the overall direction of financial markets. But with the onset of the Iranian conflict that was shattered, we saw the energy shock triggering reignited inflation concerns, which pushed sovereign yield curves much higher across major developed markets. At the same time, credit spreads experienced markedly less dislocation, widening only modestly and remaining near historical tights. This dichotomy between rates and credit suggests to us that the market has greater concern around higher inflation than a sustained growth downturn. Still, the situation remains highly fluid. Ultimately, the dynamic nature of the current market environment has reinforced the important role of active management in navigating uncertainty.

What are you most focused on as we move into the next quarter? 
As we look forward, we are emphasizing flexibility, diversification, and discipline in the second quarter. In an environment where risks are more complex and outcomes more dispersed, the ability to use multiple levers to actively shift portfolios toward the most compelling opportunities is paramount. Today, we are focused on broad diversification and up-in-quality tilt, given historically tight credit spreads and strong liquidity. From a positioning perspective, near-term rate sell-offs created attractive opportunities to selectively and incrementally add duration, leading us to modestly overweight diversified across U.S. and non-U.S. curves. Our credit exposure is skewed toward higher-quality, shorter-dated U.S. dollar investment-grade corporates and has increased just above our long-term averages. This increase was funded by trimming European credit and selected securitized exposures where strong performance had diminished relative value. We will continue to be selective and opportunistic, taking what the market gives us while maintaining optionality as prices evolve.

What’s your playbook for managing geopolitical shocks like the Iran conflict?
The name of the game is separating prices from headlines. A rapidly shifting geopolitical landscape can create the temptation to act on impulse and without complete information. Our relative-value-focused process is designed to resist this temptation. We are prepared to capitalize should volatility ramp up or dislocation in relative values become more meaningful, but only when the compensation for doing so justifies such action. This disciplined approach is guided by our six-month outlook, which not only frees us from having to predict increasingly hazy long-term outcomes but also allows us to cut through the noise created by constant and often conflicting headlines. We believe leaning into our process will allow us to successfully navigate this uncertain backdrop while locking in compelling income for our clients.