The initial three months of 2026 were characterized by a profound reevaluation of global risks, rather than by predictable economic outcomes. Although the economic outlook at the start of the quarter was generally positive, with widespread predictions for steady global growth and manageable inflation, unforeseen events quickly reshaped the landscape.
A critical factor influencing global markets was the effective closure of the Strait of Hormuz. This event significantly disrupted the flow of essential commodities, including oil, natural gas, and various industrial inputs, prompting a sharp increase in commodity prices. In response, central banks, including the Bank of England and the European Central Bank, swiftly recalibrated their monetary policies, with futures markets indicating multiple interest rate hikes. This period also saw divergent trends within the technology sector; while major tech companies surpassed expectations with their capital spending, software companies experienced a downturn, shedding over 20% of their value amid concerns about the disruptive potential of AI business models.
During this turbulent quarter, the U.S. Treasury market saw its 2-year yield increase by 32 basis points to 3.79%, and the 10-year yield rose by 15 basis points to 4.32%, leading to an overall flattening of the Treasury curve. In this environment, the Northern Funds Limited Term U.S. Government Fund recorded an underperformance relative to its benchmark. This outcome was primarily attributed to the fund’s fees and a slight negative contribution from its exposure to U.S. Treasury Inflation-Protected Securities (TIPS).
This period of significant market volatility underscores the importance of resilient investment strategies and agile adaptation to geopolitical and technological shifts. While challenges arose from supply chain disruptions and technological transformations, these moments also highlight opportunities for innovation and strategic realignment, reinforcing the need for prudence and forward-thinking in financial stewardship.
