Commentary

As we noted last month, we viewed the dollar’s strength after the September low as a sign of a rebound that would last into the spring/summer. Driving this belief was the outlook for a very strong U.S. economy and sticky inflation well above the Fed 3% target. This didn’t work as the dollar suffered from geopolitical actions. The committee shifted to a long EM local debt position in February for protection against dollar declines and yield.

We also noted that corporate spreads are at multi-year lows and small-cap equity valuations remain expensive. We continue to believe the strong nominal growth outlook should keep spreads tight and valuations high. We expect high-yield debt to stay attractive, allowing us to pick up extra yield in lower-quality names.

In March, the Index committee decided to leave positioning unchanged. Long-term yields have fallen but remain in a tight range, and extra yield from lower-quality and EM continues to be a focus.

The characteristics, rationale, and deviations below reflect the index positioning relative to the baseline benchmark effective March 2, 2026.

Rationale 

90% Duration	The committee expects the economy and inflation to remain stronger than expected. This should continue to reduce the outlook for 2026 Fed rate cuts. The duration of our Index is 90% the duration of a benchmark index.
Bulleted Curve	The Index holds a bulleted curve strategy, betting on a steeper yield curve.
70% Underweight IG Credit	The Index has held an underweight position relative to the benchmark in investment-grade corporate bonds, believing their tight credit spreads and high valuations offer little value. Given our belief in a strong economy and sticky inflation, we believe we should increase our corporate exposure, but through high-yield exposure.
Neutral Securitized	The Index holds a neutral position relative to the benchmark within the securitized sector.
10% Short-Term TIPS	A short-term TIPS position offers inflation protection at an attractive yield.
5% Interest Rate Hedged High-Yield	With credit spreads extremely tight, picking up yield from lower-quality corporates is an attractive play.
5% Emerging Market Local Debt	This position offers yield enhancement while offering protection from further dollar declines. The position is underweight China (and overweight Latin America) as China still has considerable political risk.

Deviations

Allocation

Name	Market Value (%)
iShares MBS ETF	26.37
iShares 3-7 Year Treasury Bond ETF	16.65
iShares 7-10 Year Treasury Bond ETF	10.49
iShares 0-5 Year TIPS Bond ETF	10.00
Vanguard Intermediate-Term Corporate Bond ETF	7.46
Vanguard Short-Term Corporate Bond ETF	5.10
WisdomTree Emerging Markets Local Debt Fund	5.00
WisdomTree Interest Rate Hedged High Yield Bond Fund	5.00
Vanguard Long-Term Corporate Bond ETF	3.33
Schwab Short-Term US Treasury ETF	2.69
Schwab Long-Term U.S. Treasury ETF	2.66
iShares Agency Bond ETF	2.25
iShares BBB Rated Corporate Bond ETF	2.00
iShares 20+ Year Treasury Bond ETF	1.00