Madison Core Bond Fund Q2 2026 Investment Strategy Letter
Market volatility receded in Q2 2026 as a ceasefire between the U.S. and Iran took hold, and oil prices retreated toward pre-conflict levels. Treasury yields moved higher, and corporate bond spreads tightened meaningfully.
Intelligence analysis by Llama
The Madison Core Bond Fund's Q2 2026 investment strategy letter discusses the market's response to the ceasefire and the fund's positioning in the current market environment. The fund anticipates episodic rate volatility and is maintaining a high-quality bias to capitalize on market dislocations.
Imagine you're on a rollercoaster, and the ride gets smoother as the ceasefire between the U.S. and Iran takes hold. The market gets less bumpy, and oil prices go back to where they were before the conflict. The Madison Core Bond Fund is trying to make the most of this smoother ride by investing in high-quality bonds and being prepared for any bumps that might come up.
Analysis
A Ceasefire and Market Volatility
The second quarter of 2026 saw a significant decrease in market volatility as a ceasefire between the U.S. and Iran took hold. This development led to a retreat in oil prices toward pre-conflict levels. The domestic economy showed resilience during the quarter, led by a strong labor market and steady consumer spending.
Treasury Yields and Corporate Bond Spreads
Treasury yields moved higher again in the second quarter of 2026, and the yield curve continued to flatten, with the front end leading the move. Corporate bond spreads reversed course in the second quarter of 2026 and tightened meaningfully, with overall investment grade spreads moving 15 basis points tighter to end the quarter at 74 basis points.
Investment Strategy and Positioning
The Madison Core Bond Fund anticipates episodic rate volatility under Chairman Warsh's hawkish stance and reduced forward guidance. The fund is favoring intermediate maturities and maintaining a high-quality bias to capitalize on market dislocations. The fund remains overweight agency mortgage-backed securities for stable carry and favors the belly of the yield curve (two-to-seven years) as intermediate maturities appear attractive versus current market rate expectations.
Key points
- Market volatility receded in Q2 2026 as a ceasefire between the U.S. and Iran took hold.
- Treasury yields moved higher, and corporate bond spreads tightened meaningfully.
- The Madison Core Bond Fund anticipates episodic rate volatility and is maintaining a high-quality bias to capitalize on market dislocations.
If the ceasefire holds, the Madison Core Bond Fund could benefit from a more stable market environment, allowing it to focus on generating returns through its investment strategy.
However, if the ceasefire were to break down, the fund could face increased market volatility, potentially leading to losses for investors.
