It’s an astute question and one the Investment Committee thinks about a great deal.  Ultimately, it depends on why the Fed would be lowering interest rates.  If things go as planned, inflation continues to subside, and the economy can maintain positive economic growth (aka soft landing), then we may not have a credit event.  This is essentially where we sit today as far as present expectations go, at least for the next few quarters until something proves otherwise.  Of course, if the economy does slow faster than anticipated and they end up behind the curve with overly restrictive policy, then you would have credit spreads widening beyond any duration benefit in that part of the bond market.  It’s always client-specific, but it’s a balancing act between the two and we have begun shifting to favor high grade fixed income in our portfolios at this point. We still believe there is room to allocate to both, but we are leaning into the ‘boring bond’ side of the equation. We feel adequately rewarded with yields in the 5% range and want a little duration to lock them in and hedge against that soft landing not materializing.  Resisting the urge to stretch for yield and reduce some of that credit risk at this stage is prudent, and we feel it offers a better risk-reward skew for fixed-income portfolios.
~ Brian T. Szytel, July 2, 2024