Cavanal Hill Bond Fund Quarterly Commentary
Market Overview
The second quarter of 2026 was shaped by a mix of economic resilience, concerns over persistent inflation, and heightened geopolitical uncertainty. While the U.S. economy expanded, markets largely focused on the impact of higher energy prices and disruptions tied to the Middle East conflict. The economy entered the period from a position of strength, but uncertainty surrounding global trade and energy markets created a more cautious backdrop. Recession risk remains contained, though the range of potential economic outcomes has widened.
U.S. economic data reflected an economy that is slowing gradually rather than contracting. The labor market remained stable, with payroll growth moderating but able to absorb workforce expansion. Consumer confidence remained uneven as households balanced solid employment conditions against higher prices and policy uncertainty. Inflation rose as higher energy costs and tariff-related pressures offset earlier progress on lowering inflation. Manufacturing activity was mixed, while the service sector supported overall economic growth.
The Federal Reserve held its rate policy steady, leaving the federal funds target range at 3.50%– 3.75%. Policymakers acknowledged continued economic growth and a relatively healthy labor market but remained focused on inflation risks. Higher energy prices and lingering tariff effects raised doubts that inflation would continue moving smoothly toward the Fed’s target. As a result, expectations shifted toward a higher-for-longer rate environment, contributing to volatility in Treasury yields and periodic yield curve flattening.
How are you positioning the Fund?
We favor securitized assets to boost yield, especially short-duration asset-backed securities, which have a significant yield advantage over corporate bonds. We are focused on moving the portfolio to higher-grade securities overall, as spreads have compressed significantly.
We have allowed the Fund’s duration to drift slightly below the benchmark’s.
Why should investors consider investing in this fund?
With economic uncertainty rising along with financial market volatility, high quality fixed income should be a particularly attractive asset class now and for the foreseeable future in our view.
Disclosures
An investor should consider a fund’s investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about an investment company can be found in the fund’s prospectus. To obtain a Cavanal Hill Funds prospectus or summary prospectus, please call 800-762-7085 or visit us at www.cavanalhillfunds.com. Please read it carefully before investing.
Cavanal Hill Investment Management, Inc. is an SEC-registered investment adviser and a wholly-owned subsidiary of BOK Financial Corporation, a financial holding company (“BOKF”). BOKF, NA serves as the custodian for the Cavanal Hill Funds. Cavanal Hill Investment Management, Inc. provides investment advice, administration and other services for the Funds and receives a fee for providing such services as fully described in the prospectus. The Funds are distributed by Cavanal Hill Distributors, Inc., a registered Broker/Dealer, member FINRA and wholly-owned subsidiary of BOKF.
Commentary provided is for the indicated period and is designed to provide a frame of reference. It does not constitute investment advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. The opinions expressed herein reflect the judgment of the authors at this date and are subject to change without notice and are not a complete analysis of any sector, industry or security. This document contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the Cavanal Hill Funds, the securities and credit markets and the economy in general. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the value and potential future value or performance of any security, group of securities, type of security or market segment involve judgments as to expected events are inherently forwardlooking statements. Management judgments relating to and discussion of the value and potential future value or performance of any security, group of securities, type of security or market segment involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. The potential realization of these forward-looking statements is subject to a number of limitations and risks, which are described in the Funds’ prospectuses, and investors or potential investors, are cautioned to review the Funds’ prospectuses and the description of such risks. Neither the Funds nor the Funds’ investment adviser, Cavanal Hill, undertake any obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
Investment Risks
Fixed income securities are subject to interest rate risks. The principal value of a bond falls when interest rates rise and rises when interest rates fall. During periods of rising interest rates, the value of a bond investment is at greater risk than during periods of stable or falling rates. Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in prices, especially for longer-term issues and in environments of changing interest rates.