Piton Webinar: Q1 2026 Fixed Income Update and Outlook
- Apr 13
- 10 min read
Updated: Apr 29
Welcome to Piton Investment Management's Q1 2026 fixed income update and outlook with CIO Brian Lockwood. The Federal Reserve held rates steady at 3.5-3.75% at both its January and March meetings as policymakers navigate a historic energy shock triggered by the Iran war. Brent crude surged above $111 per barrel following the closure of the Strait of Hormuz in early March, fundamentally altering the inflation outlook even as February CPI came in at 2.4%. March's jobs report showed a rebound with 178,000 positions added, but volatility persists with February's catastrophic -133,000 revision. The Fed's updated projections now forecast 2.7% inflation for 2026, well above target, while maintaining expectations for just one rate cut this year. Against this backdrop of geopolitical uncertainty and data disruption, fixed income markets are leaning heavily on income, with the 10-year Treasury around 4.2% as the primary driver of returns. Today, Brian examines how Q1 2026 unfolded and what investors should expect as we move deeper into the year.
Recorded April 8, 2026
Q1: How did fixed income perform in Q1 2026, and how does it compare to the strong 7% returns we saw in 2025?
When you look at the total return of fixed income markets in Q1, they were basically flat. If you were in an intermediate portfolio, you might have been up a few basis points. If you were in an aggregate portfolio, you were probably down a few basis points. But interestingly enough, that flatness made cash the best asset class in Q1, away from oil and gold and things like that. If you look at the quarter as a whole, the first two months were very much like 2025, where we saw bond prices go up, and interest rates continued to tick down right into the end of February. Then obviously, Iran happened, and we saw that all reversed. And when you look at March of this year, it was a little bit like 2022, where you saw bond prices and stock prices act very much correlated, and you saw a lot of reversal from what happened in the first two months. So, inflation scare, possibly a stagflation scare, pricing out, eases that we thought were going to happen, all of those kinds of things made March kind of a very mixed month for markets.
Q1 2026 Fixed Income Performance
Fixed income was essentially flat in Q1; intermediate portfolios up a few bps, aggregate slightly negative
First two months mirrored 2025's rally, but the Iran War in March triggered a sharp reversal; cash was the top-performing traditional asset class
March saw stocks and bonds move in tandem, reminiscent of 2022, driven by inflation and stagflation fears
Q2: The Fed held rates at 3.5–3.75% in both January and March with an 11-1 vote, raising its 2026 inflation forecast to 2.7% for both headline and core PCE. How has this more hawkish stance affected the yield curve and sector performance?
Hawkish is the right word. We saw a much more divided Fed in Q1 and basically in March. What that did was, with the US yield curve, create a bearish flattening, if you will. What happened as we started to get this inflation or stagflation scare in the marketplace, we saw market participants start to price out the idea of further cuts from the FOMC. As a matter of fact, at one point in March, we started to see a pricing of a possible hike. That in return pushed risk markets lower and it pushed credit sectors wider. And that is where we saw a lot of the volatility come into the markets.
Fed's Hawkish Shift and Yield Curve Impact
Fed held rates at 3.5–3.75% at both January and March meetings (11-1 vote), raising its 2026 inflation forecast to 2.7%
Hawkish tone triggered a bearish flattening of the yield curve, pricing out the idea of further cuts from the FOMC and the markets even briefly pricing in a possible hike in March
Credit spreads widened and risk assets sold off as the market repriced the likelihood of further Fed easing
Q3: Oil prices have surged above $111 per barrel following the Iran war and Strait of Hormuz closure. With March CPI data due Friday, how is this energy shock reshaping the inflation outlook for the remainder of 2026?
When you look at oil prices in Q1, they rose 98%. 62% of that came in March. It was a pretty big move and shocking move, but when we look through, investors will start to focus on longer-term expectations of inflation. A lot of Fed officials are already starting to do this. I think Fed governors would love to use the word “transitory” again, but they know that's taboo from the last time. When you think about an oil shock to the marketplace, that is really the way you want to think about it for the long term. And let's focus on the economy, jobs, as we get through this.
Energy Shock and Inflation Outlook
Oil prices surged 98% in Q1, with 62% of that move occurring in March following the Strait of Hormuz closure
The Fed is looking through near-term oil price volatility, refocusing on longer-term economic fundamentals - effectively applying a transitory framework without using the word
February CPI came in at 2.4%, but the energy spike complicates the outlook for the rest of 2026
Q4: March jobs showed 178,000 added after February's -133,000 loss, but the three-month average is just 68,000. How are you reading this volatile labor market data, and what does it mean for Fed policy?
The three-month average is really much more important than the month-to-month figures you saw during the first quarter. We had a really bad number and then a pretty decent number. When you take those longer-term frames, you think of it as what would that be like in normal times? And 68,000 jobs is not a big growth story for the U.S. economy. So, that’s something to think about when we get through this, the duration of this war, and we start thinking about the economy again. And what does it mean for the Fed?
Well, it means that the Fed can start looking at the possibility of easing rates at some time in the future if this type of scenario keeps with jobs. It also means, and more importantly, maybe, that the bar for the Fed to raise rates is still very, very high.
Labor Market Volatility and Fed Policy Implications
Three-month jobs average is just 68,000
The subdued trend gives the Fed room to consider rate cuts later in 2026 if conditions persist
Conversely, The bar for the Fed to raise rates remains very high, even amid the current geopolitical shock
Q5: Investment-grade corporate spreads remain historically tight near 80 basis points despite significant geopolitical risk. Where do you see the best relative value across credit sectors given elevated uncertainty?
We really do think it is still a good environment, especially in the IG (investment-grade) world for fortress balance sheet companies. But spreads still remain tight. We saw in March, in the first quarter in general, we saw some widening of credit spreads, which was good. But as markets started to snap back, those remained historically at low levels, risk premium levels. I'd say in other spread markets, munis have gone from being expensive to fairly valued. And then in things like MBS and Securitized Market, option-adjusted spreads, because of the volatility, continue to look really attractive.
Credit Sector Relative Value
Investment-grade corporate spreads remain historically tight near 80 bps; high-quality fortress balance sheet companies are still favored
Munis have shifted from expensive to fairly valued, offering a more attractive entry point
MBS and securitized markets offer compelling option-adjusted spreads given elevated volatility
Q6: With the April Fed meeting approaching and oil markets dominating policy discussions, how are you positioning duration and sector allocation in client portfolios?
The Fed meets at the end of April, the second-to-last day of the month. They will be getting a huge data dump on the economy before that. They will also be getting probably a lot more White House press conferences from that time. They will have a lot more data to dissect, but obviously, I think everybody's in the camp that they are still going to remain cautious; their story will start to evolve, whether they become increasingly hawkish or just more of a balanced approach. In terms of our portfolios, we still want to remain longer in terms of interest rate risk. We are doing this by focusing on the 5 to 10 year-old part of the curve and we are staying in high quality. What does that mean? That means government bonds versus corporate bonds. That means defensive sectors within our corporate bond allocations, in our muni portfolios. It means general obligation, state general obligations, essential service bonds, stuff that is really high credit quality.
Duration and Sector Positioning
Portfolios are positioned longer on interest rate risk, concentrated in the 5 to 10-year part of the curve
Quality is the priority: government bonds over corporates, defensive corporate names, and high-grade munis
The April Fed meeting is closely watched; a cautious tone is expected with potential for a more balanced shift
Q7: Kevin Warsh is set to replace Chair Powell in May, oil remains above $110, and the Fed projects inflation at 2.7% through year-end. What is your outlook for fixed income given this complex backdrop?
We think that the short-term increase in yields that we saw in March is a really good opportunity for investors. While March did expose that correlations can go up with both stocks and bonds and risk markets and risk-free markets, in the longer term, we think the bond market will be a good place to hide out and possibly a good port in the storm if economic growth continues to stall. In general, it will also be a good place to be versus cash, if the Fed does start to point towards lower rates later in the summer or after the summer. One of the things that's interesting about the bond market is long duration assets still have a little bit of risk to them. Obviously with the deficit, we've seen some auctions that haven't been that good. We still like the intermediate part of the curve.
2026 Fixed Income Outlook Under New Fed Leadership
The March yield spike is viewed as a buying opportunity, particularly in intermediate fixed income
Long-duration assets carry added risk from deficit concerns and weak Treasury auction demand
If the Fed pivots toward easing in summer, bonds are well-positioned to outperform cash amid slowing growth
Q8: Brian, with well over 30 years of experience managing fixed income portfolios and overseeing over $800 million in customized SMA portfolios for financial advisors, family offices, and institutions at Piton. What's your overall sentiment heading into Q2, and what's top of mind as you manage those portfolios through this geopolitical uncertainty?
We really think there's going to be a continued wind in the sail for investment-grade (IG) fixed income markets. One of the reasons is that we think through the geopolitical risks that we're facing right now. And to make it simple, when you look at what would be top of what’s driving markets right now if we didn't have this Iran situation. And I think one of the things is private credit and how people are having sort of a rethink of the asset class. We do think it's a valid asset class. But when you think of what's going on with it right now, we do think there's a little bit of a blood in the water theme. And you have to remember that private credit markets grew a lot because yields were really low in fixed income markets. So, they gave up liquidity to get that higher yield. And now I think they're starting to see that total return is very separate from yield and maybe they're not getting the total returns that they wanted that compensate for having decent liquidity.
Private Credit Rethink and IG Fixed Income Tailwinds
Private credit's appeal was built on suppressed IG yields
Investors are questioning whether private credit's total returns adequately compensate for the illiquidity premium at current yield levels
Piton sees this dynamic as a structural tailwind for high-quality investment-grade fixed income as capital gravitates toward liquidity and competitive public market yields
Supporting notes at the date of recording (April 8, 2026):
This analysis is provided for educational purposes and does not constitute investment advice. Past performance does not guarantee future results. Consider your individual circumstances and consult with qualified professionals before making investment decisions.
Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg's licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
Federal funds target rate 3.50%–3.75%, held at January 28–29 and March 18–19, 2026 FOMC meetings (11–1 vote): Federal Reserve FOMC Statements, January and March 2026 [https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm]
Fed 2026 PCE inflation forecast raised to 2.7% (headline and core): Federal Reserve Summary of Economic Projections (SEP), March 2026 [https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20260319.pdf]
Brent crude above $111/barrel following Strait of Hormuz closure (early March 2026): Bloomberg Commodity Data; U.S. Energy Information Administration (EIA) Short-Term Energy Outlook, April 2026 [https://www.eia.gov/outlooks/steo/]
Oil prices rose approximately 98% in Q1 2026, with approximately 62% of that move occurring in March: Bloomberg Commodity Indices; EIA Petroleum Supply Monthly, Q1 2026
February 2026 CPI: +2.4% year-over-year: Bureau of Labor Statistics, Consumer Price Index Summary, March 2026 [https://www.bls.gov/cpi/]
March 2026 nonfarm payrolls: +178,000; February 2026 revision: –133,000; three-month average: approximately 68,000: Bureau of Labor Statistics, Employment Situation Summary, April 4, 2026 [https://www.bls.gov/news.release/empsit.nr0.htm]
10-year U.S. Treasury yield approximately 4.2% as of April 8, 2026: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates [https://home.treasury.gov/resource-center/data-chart-center/interest-rates/]
Investment-grade corporate option-adjusted spreads approximately 80 basis points: Bloomberg; ICE BofA U.S. Corporate Index (C0A0), April 2026
Kevin Warsh nominated and confirmed to succeed Jerome Powell as Federal Reserve Chair in May 2026: White House announcement; U.S. Senate confirmation proceedings, 2026
Fixed income index total return data (Q1 2026): Bloomberg U.S. Aggregate Bond Index; Bloomberg U.S. Intermediate Government/Credit IndexThis analysis is provided for educational purposes and does not constitute investment advice. Past performance does not guarantee future results. Consider your individual circumstances and consult with qualified professionals before making investment decisions.
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