During the third quarter of 2025, the Victory Fund for Income, specifically its Class A shares measured by net asset value, achieved a total return of 1.15%. This performance was remarkably consistent with its benchmark, the Bloomberg U.S. 1-5 Year Government Bond Index, which also posted a 1.14% return. A key event impacting the financial landscape during this period was the U.S. Federal Reserve's decision to reduce interest rates by 0.25% in mid-September. This rate adjustment significantly benefited all segments of the fixed income market, contributing to positive total and excess returns when compared against duration-neutral U.S. Treasury bonds.
The third quarter of 2025 concluded on September 30, a period marked by notable shifts in monetary policy. The Federal Reserve's rate cut, announced after its two-day meeting on September 17, 2025, was a pivotal moment. This move was widely anticipated to stimulate economic activity and ease borrowing costs. For the fixed income market, the reduction in short-term interest rates had a cascading effect, making existing bonds more attractive and consequently driving up their prices.
As a direct result of the Federal Reserve's policy action, various fixed income sectors experienced a surge in performance. Investors saw positive total returns across the board, alongside excess returns relative to U.S. Treasury bonds of similar duration. This environment created favorable conditions for income-focused funds, such as the Victory Fund for Income, allowing them to capitalize on the improved market sentiment and asset valuations.
The stability of government bonds, particularly those with shorter maturities (1-5 years), played a crucial role in providing a solid foundation for the fund's performance. The Bloomberg U.S. 1-5 Year Government Bond Index, serving as the fund's benchmark, accurately reflected the positive momentum within this segment. This period underscored the sensitivity of bond markets to central bank decisions and the potential for rate adjustments to influence investment outcomes across different asset classes.
The third quarter of 2025 demonstrated the significant impact of central bank policies on the fixed income market. The Federal Reserve's interest rate cut served as a catalyst, fostering an environment where all fixed income sectors delivered strong performance, thereby supporting the Victory Fund for Income's robust returns.