Harbor Disciplined Bond ETF Q1 2026 Commentary (AGGS)

The fixed-income market has become increasingly focused on the U.S.-Iran conflict, which remains fluid and could escalate further. –Income Research + Management

Market in Review

During the first quarter of 2026, investors faced a broadening set of risks, including escalating geopolitical tensions, concerns about private credit, and Artificial Intelligence related disruption fears. None were enough to derail an expanding U.S. economy, even as signs of fragility intensified. The labor market showed that finding a job was becoming more difficult; there were fewer job openings than unemployed workers (a ratio of 0.91); and the average duration of unemployment rose to nearly 26 weeks. Meanwhile, inflation appeared reasonably well anchored with February’s year-over-year Consumer Price Index rising by 2.4%. Given that relatively stable data, the U.S. Federal Reserve (“Fed”) kept its target range steady at 3.50%–3.75% during its January and March meetings. While the Federal Open Market Committee’s March projections still implied one rate cut in 2026, the market lost confidence that the Fed could ease as the U.S.-Iran conflict intensified. With the Strait of Hormuz closed and mounting concerns over increased strikes on energy infrastructure, the West Texas Intermediate crude oil price rose from $57.42 to $101.38 per barrel, with many believing oil—and inflation—could move even higher if the conflict persisted. Against that backdrop, the Treasury curve bear-flattened quarter-over-quarter, reflecting expectations of higher-for-longer monetary policy and slower long-term growth. The two-year Treasury rate rose by 0.32% to 3.79%, while the 30-year rate rose by 0.07% to 4.91%.

Portfolio Performance

During the first quarter of 2025, the Harbor Disciplined Bond ETF (“ETF”) returned –0.05% (NAV), matching its benchmark, the Bloomberg US Aggregate Bond Index, which also returned –0.05%.

The ETF’s performance relative to the Index was driven primarily by security selection in the Financials sector.

The investment-grade and high-yield corporate markets were