The American Century Inflation-Adjusted Bond Fund posted notable relative results in the first quarter of 2026, driven by strategic positioning across inflation protection, securitized credit, and swap allocations.
U.S. investment-grade bonds declined slightly during the first quarter, ending a four-quarter run of consecutive gains amid a turbulent and unpredictable market environment.
The volatile period featured renewed tariff concerns, a Federal Reserve policy pause, mixed economic data, war in Iran, and sharply rising oil prices that rattled markets throughout the quarter.
The fund’s overweight exposure to inflation protection relative to its benchmark proved beneficial, contributing positively to relative performance during the period under review.
Fund management extended the portfolio’s inflation duration ahead of the outbreak of war, a decision that aided results in March as soaring oil prices pushed inflation expectations significantly higher.
Rising energy costs fed directly into market-based inflation measures, validating the fund’s earlier positioning and supporting returns during what became one of the quarter’s most turbulent stretches.
Allocations to securitized credit securities, held alongside short-maturity inflation swaps, emerged as notable contributors to the fund’s overall performance results for the quarter.
Management increased the fund’s allocation to swaps at a point when valuations appeared attractive relative to Treasury Inflation-Protected Securities, known as TIPS, seeking to capitalise on the pricing differential.
That swap allocation strategy produced modest negative effects from carry, partially offsetting the gains generated elsewhere within the portfolio during the first quarter.
The fund’s overall positioning reflected a careful balance between capturing inflation upside and managing the costs associated with maintaining those hedging and swap positions over time.
Looking ahead, management expects the broader economy to show improvement from late 2025 onward, signalling a degree of confidence in the underlying growth trajectory despite near-term headwinds.
However, the team cautioned that higher energy prices could offset some of the positive effects stemming from fiscal stimulus measures already in place or anticipated in coming months.
The interplay between energy market pressures and government spending initiatives remains a key variable that fund management will monitor closely as conditions continue to evolve.
The war in Iran introduced a significant geopolitical risk premium into commodity markets, with oil price movements becoming a central driver of inflation dynamics across the quarter.
That geopolitical backdrop added complexity to fixed income positioning broadly, as investors weighed the duration and severity of the conflict against its potential macroeconomic consequences.