The first quarter of 2026 saw the Janus Henderson Intermediate Term Income Managed Account register a gross return of -0.03%, modestly surpassing the Bloomberg US Aggregate Bond Index's return of -0.05%. This period was characterized by a notable change in investor sentiment, transitioning from an initial positive outlook driven by hopes of reduced inflation and impending rate adjustments, to increased apprehension fueled by persistent inflationary pressures and heightened geopolitical tensions, particularly stemming from the Middle East conflict.

During the initial weeks of March, as bond yields experienced a significant uptick, the account's tactical decision to maintain an underweight duration proved beneficial, offering a buffer against market volatility. However, the strategy's inherent overweight exposure to credit spread risk became a drag on performance. The escalation of conflict in the Middle East led to a broad widening of credit spreads, negatively impacting sectors where the account had concentrated its holdings. These included allocations to asset-backed securities (ABS) and private-label collateralized mortgage obligations (CMOs), which, despite their overall positive contribution, could not entirely offset the broader market's reaction to geopolitical events.

Looking ahead, Janus Henderson anticipates that front-end duration will serve as a more effective hedge against potential future escalations in the Middle East. The rationale behind this outlook is that higher oil prices, a common consequence of such conflicts, could translate into lower interest rates as concerns about global economic growth intensify. This forward-looking perspective underscores a continued focus on active management and strategic positioning to navigate an unpredictable economic and geopolitical landscape.

The first quarter of 2026 presented a dynamic environment for fixed income, with the Janus Henderson Intermediate Term Income Managed Account demonstrating resilience by marginally outperforming its benchmark. This performance was influenced by strategic duration management that capitalized on rising yields and careful selection within securitized credit, while also navigating the headwinds of widening credit spreads driven by geopolitical events. The shift in market focus towards inflation and geopolitical stability highlights the ongoing need for adaptable investment strategies.