Quarterly Investment Review: Q1 2022
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Russia’s invasion of Ukraine in late February caused a global shock. The grave human implications fed through into markets, with equities declining and bond yields rising (meaning prices fell). Commodity prices soared given Russia is a key producer of several important commodities including oil, gas, and wheat. This contributed to a further surge in inflation as well as supply chain disruption.

Russia’s invasion of Ukraine amplified existing concerns over inflation pressures, particularly through food and energy, although US economic data otherwise remained stable. The US unemployment rate dropped from 3.8% in February to 3.6% in March. Wages continue to rise but have not yet matched the rate of headline inflation. The annual US inflation rate, as measured by the consumer price index, hit 8.5% in March.

Corporate bonds saw significantly negative returns and wider spreads, underperforming government bonds. High yield spreads widened more than investment grade, although they saw less negative total returns due to higher coupon income. Thinking of today’s environment - Barring a need to liquidate a fixed income security to support operations and most likely generate a realized loss, a fixed income security’s unrealized loss position will ultimately dissipate and then disappear upon maturity leaving only the return from its embedded yield behind.

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