Cavanal Hill Bond Fund Quarterly Commentary

4Q 2023

Market Overview

During the fourth quarter, the yield on the 10-year U.S. Treasury declined rapidly, falling 70 basis points (0.70%) in the fourth quarter to 3.88% as the bond market staged a remarkable year-end rally. The catalyst was growing anticipation of multiple Federal Reserve (the Fed) rate cuts in 2024. The market was influenced by positive economic data, including higher-than-expected spending by households, driven by strong employment, more excess savings, and a large increase in passive income due to higher money market yields. It appears that aggressive rate hikes by the Fed in 2022 and early 2023 have been able to push inflation down toward the Fed’s 2% target, so far without forcing the economy into a recession. Because of these factors, an economic soft landing appears attainable.

The Fed kept rates steady through he quarter, and the target federal funds rate remains at 5.25% to 5.50%. While rates are likely to remain higher for longer than the market has expected, the Fed has increased the number of projected rate cuts in 2024 to three, from two at the previous meeting of the Federal Open Market committee. The market is far more aggressive, pricing in nearly six cuts in 2024. For the quarter, the Bloomberg Aggregate index returned 6.82%.

Positioning the Fund

Portfolio composition is subject to change

With market risks moderating, we have maintained the Fund’s credit risk exposure. We also reduced the Fund’s liquidity risk by trimming allocations to asset-backed securities. With expectations of rate cuts in the months ahead, we have modestly increased the portfolio’s duration exposure versus the benchmark index.

Why should investors consider investing in this fund?

Expected returns are higher than they have been in many years. With economic growth slowing and an aggressive Fed working to bring inflation down, high quality fixed income should be an attractive asset class. This fund’s conservative positioning should be beneficial in a more risk-averse economic environment.

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 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 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 Fund’s 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 statement, 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 rise 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.

If you’d like additional information about this or any of the Cavanal Hill Funds, please contact Craig McQueen at 303.355.2799, CraigMcQueen@cavanalhill.com, or cavanalhillfunds.com.

Not FDIC Insured | May Lose Value | No Bank Guarantee

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