BMO Strategic Fixed Income Yield Fund – Biweekly Update
July 4, 2025
Portfolio Manager Commentary
The BMO Strategic Fixed Income Yield Field (BMO SFIYF) contains a diversified suite of interest rate structured products with exposure to U..S rates. As of June 30, 2025, BMO SFIYF has a NAV of $9.84. The fund’s largest exposures are in 3-5-year U.S. rates, contingent coupons for range accruals are on average between 6-9% and steepener coupons remain between 6.5-8.5%.1 Range accruals remain within their ranges with an average of 121 bps from the tops of the range given the U.S. rates markets rally in recent weeks.
Recent Rates Market Movers:
U.S. rates performed well in recent weeks despite Powell’s continued wait and see stance, with the rally mostly driven by the risk-off tone from rising Middle East tensions. The latest fed meeting suggests the committee still sees on median two interest rate cuts for the remainder of 2025, although rate estimates for 2026 and onward were repriced higher. In the latest fed announcement, Powell reiterated the wait and see stance, continuing to focus on the trajectory of inflation in the coming summer. Most of the tone for rates in the last two weeks was set by the escalating situation in the Middle East, with equity markets initially on edge and safe haven assets such as U.S. treasuries more favored. U.S. rates markets rallied ~5bps on the Monday following the weekend of U.S.’ surprise attack on Iranian nuclear facilities, with U.S. now directly involved in the middle east tensions, since then however, the situation has seen some de- escalation.
Portfolio Positioning:
Aside from outsized market events, U.S. economic data continues to show steady progress towards inflation with little signs of growth slowdowns so far. Policy risks have subdued, even with the end of the Liberation day tariff relief coming due July 9, at least for countries who have played ball with the Trump administration. U.S. swap rates continue to inch lower, and PMs of the fund expect rates in U.S. to continue coming down in the long term but remain cautious of medium-term headline risk as well as the higher for longer rates stance. As such, PMs of the fund have recently been using volatility spikes as opportunities to add to range accruals at favorable levels, most recently adding range accruals in the front end with 7-8% coupons and increased buffers of 120 bps. The PMs continue to watch for opportunities to add to steepeners given these structures are well positioned to take advantage of the ballooning U.S. budget situation, the end of U.S. exceptionalism story, and general yield curve normalization. With continued uncertainty in the U.S. and Fed still in wait and see mode, market participants continue to monitor how this turmoil will impact lending and corporate credit. Despite the uncertainty, BMO SFIYF continues to accrue and pay out 6% annualized coupons, regardless of how credit performs. BMO SFIYF remains a good diversifier from traditional credit while still maintaining a similar enhanced coupon.
1 BMO GAM June 30, 2025. Past Performance is not indicative of future results.
Fund Snapshot
| Contingent Coupon | Credit Rating |
|---|---|
| 6.0% | A |
| Average distance from the tops of the range | 121 bps |
Fund Characteristics
| Series | Fund Codes | MER (%)* |
|---|---|---|
| Advisor (CAD) | BMO99341 | 1.07 |
| F (CAD) | BMO95341 | 0.51 |
| **Low risk rating by prospectus. |
Total Return Volatility
| Security Name | 30 Days | 90 Days | 180 Days |
|---|---|---|---|
| BMO Strategic Fixed Income Yield Fund | 3.36% | 4.65% | 5.83% |
| Iboxx USD Liquid High Yield Index TR | 2.64% | 4.98% | 4.03% |
| Iboxx USD Liquid Investment Grade Index TR | 6.56% | 7.44% | 7.20% |
| Bloomberg US Agg Total Return Index | 4.57% | 5.23% | 5.10% |
Source: Bloomberg. June 30, 2025. Historical volatility doesn’t tell you how volatile a Mutual Fund will be in the future and will change based on market conditions.
U.S. Government Yield Curve
Source: Bloomberg, June 30, 2025.
Reference Asset Exposure
Source: Bloomberg, June 30, 2025.
Yield vs. Contingent Coupon
BMO Strategic Fixed Income Yield: Yield reflects the contingent coupon of the structured rate swaps.
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BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
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