Monthly Portfolio Statistics
May 31, 2026Market Commentary
Carry opportunities emerge amid policy uncertainty
Rising energy prices have pushed markets to reassess the policy path, lifting yields and improving front-end carry. With bill issuance still elevated, relative value between bills and repo should remain a key theme in cash markets.
Markets began May asking when the US Federal Reserve (Fed) might cut. However, rising energy prices and stubborn inflation risks curbed that easing optimism. They ended the month wondering whether it might hike.
Meanwhile, yields have moved higher, while credit spreads have remained broadly unchanged. Against that backdrop, the June Federal Open Market Committee (FOMC) meeting has become must-watch television.
Energy markets complicate policy path
The macro backdrop remains awkward: growth is not weak enough to support rate cuts, while inflation has risen (April US headline CPI: 3.8%). Energy markets have added a fresh layer of uncertainty, reinforcing the idea that inflation progress may not be linear. When the Strait opens is anyone’s guess.
Rates have responded, though with more restraint than panic, accepting the fact that energy inflation is here to stay. Over the past month, the US 2-year yield has risen by approximately +25 bps (from 3.80% to 4.05%), while the 10-year has moved higher by about +14 bps (from 4.34% to 4.48%). It’s not exactly a tantrum, but it is enough to remind everyone that the market is quietly reassessing the policy path.
Figure 1: US Treasury yield curve has repriced higher
Source: Bloomberg, as of May 27, 2026
Bills yielding more than repo
On the technical side, supply remains steady and largely absorbed. Treasury issuance continues, and while demand is still there, it has required some incremental yield to clear. In the front end, elevated bill issuance has pushed yields higher, creating attractive opportunities relative to repo.
This continues to reinforce one of the least exciting but most important themes in cash markets: relative value actually matters right now. The ability to shift between repo and bills as conditions evolve remains a meaningful advantage.
Credit remains stable
Credit markets, for their part, have shown admirable consistency—or perhaps stubbornness. Credit spreads have effectively not moved at all, remaining tightly anchored despite the shifts in rates and the macro narrative.
That is either a sign of resilience. . . or a sign that markets are choosing not to deal with that problem today.
Positioning reflects a preference for flexibility over conviction. Front-end rates continue to offer attractive carry, and the lack of clarity around policy direction means that liquidity and optionality remain prioritized.
The market has shifted from debating cuts to reconsidering the entire trajectory. Yields are grinding higher, inflation risks have re-emerged, and spreads are calmly ignoring all of it.
June’s FOMC will matter more than ever as our rookie Chairman will have to handle a press conference that he prefers not to attend.
Until then, the strategy remains straightforward: stay liquid, stay flexible, and avoid declaring victory on inflation just because it briefly cooperated. Markets have done that before. It didn’t age particularly well.
Liquidity Fund
Over the month, the Caltrust Liquidity Fund experienced meaningful asset growth while maintaining a conservative risk and liquidity profile. Total AUM rose form $3.508 bln to $3.692 bln, a 5.2% increase. The yield of the fund fell modestly by 2 basis points to 3.74% month over month, weighed down by reinvestments at lower yields. Markets have generally stabilized over the month, but geopolitical risks remain, and the impact of macro disruptions can be larger to global economies given the potential supply shock from a variety of products that transit through the Straight of Hormuz. Central Banks globally, which on average were looking at potential rate cuts over the rest of 2026, have now signaled pauses or rate hiking stances as they continue to assess the duration and depth of the energy shock. Rate curves have flattened as the market reacts to incoming data, while credit spreads have also rallied on better sentiment. Issuers remain well funded and short end market liquidity remains sound. The market continues to expect that there will be no changes to US administered rates in 2026, as only 1 basis point is currently priced in. This month also marked the final meeting that Jerome Powell will be the chair of the FOMC. Kevin Warsh has been nominated to take over that position, and following confirmation, he will be tasked with directing the FOMC’s rate policy amidst uncertain outlooks for growth and inflation. From an interest rate perspective, the portfolio modestly extended as markets solidified. WAM (weighted average maturity) rose by 5 days to 44 days, and WAL (weighted average life) rose 2 days to 74 days. The Floating rate exposure in the fund fell slightly at around 22%. Exposure to Yankee CD’s remained steady at around 28%, Commercial Paper exposure was flat and exposure to repurchase agreements grew by .48% to 29% as there weren’t many material changes to the make up of the portfolio. Quality exposure to higher rated credits in the fund rose by 3%. Overall, fund liquidity levels remained very strong, as daily and weekly liquidity ratio’s remained stable, while 90 day liquidity declined modestly by -2.76% to 67.46%.
Key Statistics
| Portfolio | |
|---|---|
| WAM (Weighted Average Maturity) | 50.07 |
| WAL (Weighted Average Life) | 77.40 |
| Distribution Yield (%) | 3.75 |
| 30 Day SEC Yield (%) | 3.74 |
| 7 Day Yield (%) | 3.73 |
| 7 Day Liquidity | 34.35 |
| 90 Day Liquidity | 61.80 |
| Average Credit Quality (S&P) | A-1 |
| Floating Rate Bonds (%) | 22.82 |
Sector Allocation
Historical Performance (Net%)
Short Term Fund
In May 2026, the Short-Term Fund posted a gross total return of 0.25% with income return contributing 0.34% and price return contributing -0.09%. Income return was the largest driver of total return. Treasuries was the largest contributor to income return, returning 0.25% in income return, followed by IG Credit (0.05%), ABS (0.03%), and government related securities (0.01%). For price return, Treasuries was the largest contributor at -0.08%.
Key Statistics
| Portfolio | Benchmark | Difference | |
|---|---|---|---|
| Duration (yrs) | 0.77 | 0.57 | 0.20 |
| Distribution Yield (%) | 3.78 | N/A | - |
| 30 Day SEC Yield (%) | 3.91 | N/A | - |
| Yield to Maturity (%) | 4.15 | N/A | - |
| Spread Duration (yrs) | 0.18 | 0.15 | 0.03 |
| OAS (bps) | 3.74 | 9.79 | -6.05 |
| Wal to Worst (yrs) | 0.81 | 0.58 | 0.23 |
| Average Credit Quality (Mdy/S&P) | Aa1/AA | Aa2/AA | - |
| Floating Rate Bonds (%) | 4 | 6 | -1 |
Benchmark: BBG Short Term Govt/Corp Index
Sector Allocation
Monthly Total Return Contribution (Gross bps)
Historical Performance (Net %)
Medium Term Fund
In May 2026, the Medium-Term Fund posted a gross total return of 0.09% with income return contributing 0.36% and price return contributing -0.27%. Income return was the largest driver of total return. Treasuries was the largest contributor to income return, returning 0.25% in income return, followed by IG Credit (0.06%), ABS (0.04%) and government related securities (0.01%). For price return, Treasuries was the largest contributor at -0.26%. With a longer duration profile and more duration risk, the impact of rates increasing, due largely to growth optimism from AI and higher oil prices/higher inflation expectations from the Iran conflict, was more acutely felt in the Medium-Term fund.
Key Statistics
| Portfolio | Benchmark | Difference | |
|---|---|---|---|
| Duration (yrs) | 2.15 | 1.85 | 0.30 |
| Distribution Yield (%) | 3.89 | N/A | - |
| 30 Day SEC Yield (%) | 4.03 | N/A | - |
| Yield to Maturity (%) | 4.09 | N/A | - |
| Spread Duration (yrs) | 0.32 | 0.45 | -0.13 |
| OAS (bps) | 6.18 | 6.49 | -0.31 |
| Wal to Worst (yrs) | 2.32 | 1.97 | 0.35 |
| Average Credit Quality (Mdy/S&P) | Aa2/AA | Aa2/AA | - |
| Floating Rate Bonds (%) | 2 | 5 | -4 |
Benchmark: ICE BoA Govt/Corp 1-3 yr (ex BBB)