Total Return Perspectives: November 2021

Interest rates were mixed in November, as shorter maturity yields continued to rise while longer maturity yields fell further. The continued flattening of the yield curve reflects the market’s expectation that the Fed will be more aggressive in their tapering of official purchases and potentially raise the fed funds target rate more quickly and aggressively than previously thought.


  • The Bloomberg U.S. Aggregate Bond Index (BC Agg) returned +0.30% in November. The Bloomberg U.S. Treasury Index (+0.77%) led the major investment grade sectors as spreads in risk assets generally widened. Corporates (+0.06%) bettered mortgage-backed securities (-0.09%) due to their key rate exposure to longer maturities. The option-adjusted spreads of corporates and MBS widened 12 and 10 basis points, respectively. Some of this widening occurred after renewed pandemic fears materialized in the final week of the month (lockdowns in Europe, new variant discovered in South Africa).
  • Inflation has shown no sign of abating. Headline CPI increased to 6.2% (with core CPI +4.6%) year-over-year, which continues to trend well above the Fed’s long-term target level of 2.0%. The market has started to accept that a significant portion of inflation is not transitory, which is consistent with the Federal Reserve Bank of New York’s Underlying Inflation Gauge readings near 4.3%. This is another all-time high for this gauge of persistent inflation going back to 1995.
  • The severe yield curve flattening continued for a second consecutive month. The 2-year yield rose 3 basis points to 0.53%. However, the 5-year yield dipped 4 basis points to 1.14%, the 10-year yield fell 11 basis points to 1.44%, and the 30-year yield fell 16 basis points to 1.78%. The long end rallied as investors expressed confidence the Fed’s more aggressive stance would successfully control inflation.
  • The fund (+0.01%) underperformed the BC Agg (+0.30%) in November. The underperformance is largely attributable to a significant underweight in longer maturity assets, as well as an underweight to Treasuries and an overweight to MBS (versus the index).

Standardized performance can be viewed here: Monthly and Quarter End Performance


  • In the near term we expect fixed income markets will be driven by a tug of war between measures to curb inflation versus continued pandemic developments. Despite the rise in prices, inflation expectations have actually declined over the past few weeks. However, we believe inflation will persist longer than the market consensus and we expect to increase our allocation to TIPS going forward. Corporate and MBS spreads have widened, but do not yet present an attractive entry point to increase exposure. Volatility in fixed income markets will likely remain elevated into year end.

Eddy Vataru
Chief Investment Officer – Total Return

John Sheehan
Vice President & Portfolio Manager

Daniel Oh
Vice President & Portfolio Manager

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Opinions expressed are those of the author, are subject to change at any time, are not guaranteed and should not be considered investment advice.

Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be higher or lower than the performance quoted. Performance data current to the most recent month end may be obtained by calling shareholder services toll free at (866) 236-0050.

The fund’s Gross Expense Ratio (as of 3/31/21) is 0.70%

The Bloomberg U.S. Aggregate Bond Index (BC Agg) is an unmanaged index which is widely regarded as the standard for measuring U.S. investment grade bond market performance. This index does not incur expenses and is not available for investment. The index includes reinvestment of dividends and/or interest income.

The Bloomberg U.S. Mortgage Backed Securities (MBS) Index tracks agency mortgage backed pass-through securities (both fixed-rate and hybrid ARM) guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The index is constructed by grouping individual TBA-deliverable MBS pools into aggregates or generics based on program, coupon and vintage.

The Bloomberg U.S. Corporate Index includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered. The index includes exclusively corporate sectors, including Industrial, Utility, and Finance, which include both U.S. and non-U.S. corporations.

Sector returns above are those of the Bloomberg U.S. Aggregate Bond Index.

Mutual fund investing involves risk. Principal loss is possible. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities.” The Osterweis Total Return Fund may invest in fixed income securities which are subject to credit, default, extension, interest rate and prepayment risks. It may also make investments in derivatives that may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may invest in in debt securities that are un-rated or rated below investment grade. Lower-rated securities may present an increased possibility of default, price volatility or illiquidity compared to higher-rated securities. Investments in foreign and emerging market securities involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks may increase for emerging markets. Leverage may cause the effect of an increase or decrease in the value of the portfolio securities to be magnified and the fund to be more volatile than if leverage was not used. Investments in preferred securities have an inverse relationship with changes in the prevailing interest rate. Investments in Asset Backed and Mortgage Backed Securities include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. It may also make investments in derivatives that may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may invest in municipal securities which are subject to the risk of default.

A basis point is a unit that is equal to 1/100th of 1%.

Coupon is the interest rate stated on a bond when it’s issued. The coupon is typically paid semiannually.

Investment grade (IG bonds are bonds with high and medium credit quality assigned by a rating agency. For Standard and Poor’s, investment grade bonds include BBB ratings or higher. For Moody’s, the cutoff is Baa.

A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages.

Duration measures the sensitivity of a fixed income security’s price (or the aggregate market value of a portfolio of fixed income securities) to changes in interest rates. Fixed income securities with longer durations generally have more volatile prices than those of comparable quality with shorter durations.

Spread is the difference in yield between a risk-free asset such as a U.S. Treasury bond and another security with the same maturity but of lesser quality.

Option-Adjusted Spread is a spread calculation for securities with embedded options and takes into account that expected cash flows will fluctuate as interest rates change.

Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

The producer price index (PPI) is a group of indices that calculates and represents the average movement in selling prices from domestic production over time.

The Job Openings and Labor Turnover Survey (JOLTS) program produces data on job openings, hires, and separations.

Treasury inflation-protected securities (TIPS) are a type of Treasury security issued by the U.S. government that are indexed to inflation in order to protect investors from a decline in purchasing power.

It is not possible to invest in an index.

All investments involve risk. Principal loss is possible. Treasury notes are guaranteed by the U.S. government and thus they are considered to be safer than other asset classes.

The Osterweis Funds are available by prospectus only. The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the Funds. You may obtain a summary or statutory prospectus by calling toll free at (866) 236-0050, or by visiting Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance.

Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC. [OSTE-20211201-0380]

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