Voya Intermediate Bond Fund Quarterly Commentary - 3Q22

Voya Intermediate Bond Fund Quarterly Commentary - 3Q22

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Total return approach, investing across full spectrum of the fixed income market including up to 20% in below investment-grade securities.

Dynamic Core Bond Strategy

Key Takeaways

  • Rates rose and bonds prices declined as the US Federal Reserve maintained a decidedly hawkish tone and inflation reports underscored the US central bank still has work to do.
  • The Strategy outperformed its benchmark, the Bloomberg U.S. Aggregate Bond Index (the Index) on a net asset value (NAV) basis, with sector allocation, security selection and duration and yield curve decisions all contributing.
  • Growth is slowing, with higher rates and persistent inflation cooling segments of the economy. These challenges are unlikely to cause a deep recession and the rise in nominal yields across sectors will present tactical opportunities.

Portfolio Review

For the quarter ended September 30, 2022, the Strategy outperformed the Index on NAV basis. Sector allocation contributed the most to performance. Meanwhile, security selection and duration and yield curve positioning also contributed.

The unusual environment of slower growth, high inflation and a tight labor market continued to drive market volatility in the third quarter of 2022. Recent tightening by the Fed has had a clear impact on interest rate sensitive parts of the economy such as housing but has not had the desired effect of cooling the labor market and wages. The additional 75 basis points (bp) rate hike delivered by the Fed at their July meeting was fully expected by markets, however Powell’s comments after the meeting, which were perceived to be on the dovish side, sent yields lower. Speculation of a Fed “pivot” began to grow, and as a result, financial conditions began to ease, fueling a rally in risk assets. This dynamic came to a swift and decisive end following Powell’s speech at Jackson Hole in which he declared the economy would feel “some pain” as the Fed will need hold a restrictive stance for an extended period of time. Further fueling the resumed selloff was a hotter than expected consumer price Index (CPI) reading, which reset the clock for a potential pause in rate hikes, as well as a surprise uptick in the number of job openings. By September, another 75 bp rate hike was fully expected by markets, and the Fed delivered on those expectations while also reiterating their intentions of “higher for longer”. After dropping close to 2.50% intra-quarter, the 10-year Treasury closed the quarter around 80 bp higher at 3.83%. The selloff in the 2-year was even more dramatic, leading to a further inversion of the yield curve.

Positive correlation between rates and spreads continued through 3Q22, however spreads finished the quarter roughly where they started. The see-saw in interest rates contributed to spread sectors performing in a similar fashion. High yield (HY) corporate bonds proved to be an exception to rule as the sector posted positive nominal and excess returns for the quarter. Meanwhile, the agency mortgage-backed securities (MBS) market was rattled by ongoing rate volatility resulting in that sector posting the worst relative performance for the quarter.

A more defensive posture with a bias towards liquidity and tactical shifts supported outperformance. Outperformance benefited from duration positioning that included a modest overweight early in the period as rates initially declined after the Fed’s July meeting. Within sector allocations, the Strategy benefited the most from our HY corporate exposures, as this sector bucked the trend and posted positive performance for the period. We shifted investment grade (IG) corporate allocations, selling into strength early in period and then redeploying capital in this sector in September as nominal yields and spreads offered opportunities. Across securitized, our agency MBS overweight was a small detractor as rate volatility proved a significant hurdle to the sector. Meanwhile, asset-backed securities (ABS) sector allocations added given the lower beta characteristics of this sector. In security selection, agency MBS selection that included collateralized mortgage obligations (CMOs) added to performance, while ABS security selection that included high quality collateralized loan obligations (CLOs) detracted. Lastly emerging market (EM) security selection was also positive across sovereign and corporate hard currency markets.

Current Strategy and Outlook

Higher prices have taken a significant bite out of household income, and as a result, consumer spending on an inflation adjusted basis has stagnated. We expect this trend to continue, with further monetary tightening resulting in additional demand destruction that will lead to an environment of weak global growth and US growth below trend if not negative. We do not however, expect a deep recession. This is because, while inflation has created a challenge for spending growth, the strong financial position of households, having recently de-levered in the early days of the pandemic, grants consumers the ability to maintain spending levels, with job security created by the excess demand for labor supporting their willingness to spend.

With a background of weaker global growth, we expect inflation to slowly decline in the months ahead, while the shelter component will keep inflation above the Fed’s comfort zone well into 2023. As a result, the Fed will push further into restrictive territory until inflation is clearly moving toward their target and will resist the urge to ease as long as the labor market remains strong.

With a difficult, and narrow path to a soft landing, the portfolio remains in a relatively defensive posture. With liquidity challenged, we have used liquid instruments to both hedge risk and take advantage of tactical market opportunities presented by the elevated level of volatility.


The Bloomberg Barclays U.S. Aggregate Bond Index is a widely recognized, unmanaged index of publicly issued investment grade U.S. Government, mortgage-backed, asset-backed and corporate debt securities. The Index does not reflect fees, brokerage commissions, taxes or other expenses of investing. Investors cannot invest directly in an index.

Principal Risks: All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield. High-Yield Securities, or “junk bonds,” are rated lower than investment-grade bonds because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities. To the extent that the Fund invests in Mortgage-Related Securities, its exposure to prepayment and extension risks may be greater than investments in other fixed-income securities. The Fund may use Derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses and have a potentially large impact on Fund performance. Foreign Investing poses special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic. As Interest Rates rise, bond prices fall, reducing the value of the Fund’s share price. Other risks of the Fund include but are not limited to: Credit Risks, Extension Risks, Investment Models Risks, Municipal Securities Risks, Other Investment Companies’ Risks, Prepayment Risks, Price Volatility Risks, U.S. Government Securities and Obligations Risks, Debt Risks, Liquidity Risks, Portfolio Turnover Risks, and Securities Lending Risks. An investment in the Fund is not a bank deposit and is not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.

The strategy employs a quantitative model to execute the strategy. Data imprecision, software or other technology malfunctions, programming inaccuracies and similar circumstances may impair the performance of these systems, which may negatively affect performance. Furthermore, there can be no assurance that the quantitative models used in managing the strategy will perform as anticipated or enable the strategy to achieve its objective.

The strategy is available as a mutual fund or variable portfolio. The mutual fund may be available to you as part of your employer sponsored retirement plan. There may be additional plan level fees resulting in personal performance that varies from stated performance. Please call your benefits office for more information.

Variable annuities and group annuities are long-term investments designed for retirement purposes. If withdrawals are taken prior to age 59½, an IRS 10% premature distribution penalty tax may apply. Money taken from the annuity will be taxed as ordinary income in the year the money is distributed. An annuity does not provide any additional tax deferral benefit, as tax deferral is provided by the plan. Annuities may be subject to additional fees and expenses to which other tax-qualified funding vehicles may not be subject. However, an annuity does provide other features and benefits, such as lifetime income payments and death benefits, which may be valuable to you.

Variable investments, of any kind, are not guaranteed and are subject to investment risk including the possible loss of principal. The investment return and principal value of the security will fluctuate so that when redeemed, it may be worth more or less than the original investment. In addition, there is no guarantee that any variable investment option will meet its stated objective. All guarantees are based on the financial strength and claims paying ability of the issuing insurance company, who is solely responsible for all obligations under its policies.

Insurance products, annuities and funding agreements issued by Voya Retirement Insurance and Annuity Company (“VRIAC”), One Orange Way, Windsor, CT 06095, which is solely responsible for meeting its obligations. Plan administrative services provided by VRIAC or Voya Institutional Plan Services, LLC (“VIPS”). Securities distributed by or offered through Voya Financial Partners, LLC (“VFP”) (member SIPC)or other broker-dealers with which it has a selling agreement. Only Voya Retirement Insurance and Annuity Company is admitted and can issue products in the state of New York. All companies are members of Voya Financial.

This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults (5) changes in laws and regulations and (6) changes in the policies of governments and/or regulatory authorities. Past performance is no guarantee of future results.

The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Portfolio holdings are fluid and are subject to daily change based on market conditions and other factors.