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Strong US GDP growth and rising inflation contributed to a more hawkish stance from the Federal Open Market Committee (FOMC) at its June meeting; the median federal funds rate projection now reflects two rate hikes in 2023.
The FOMC made technical adjustments to its administered rates, increasing the interest rate paid on excess reserves (IOER) and the rate on its overnight reverse repurchases agreement program (RRP) in order to support smooth functioning in short-term funding markets. Short-term yields moved modestly higher on the news, benefitting positioning in our Liquidity Strategies.
Front-end U.S. Treasury yields rose sharply; two-year and five-year Treasury yields ended the month at 0.25% and 0.89%, respectively. The ICE BofA 1-3 year U.S. Corporate Index average spread tightened 2 bps and we remain constructive on corporate credit, which contributed strongly to performance in some strategies