Elevated bond market volatility historically occurs during periods of shifting economic, interest rate, inflation, or business conditions, Congressional elections, changing Federal Reserve (Fed) policy, and geopolitical shocks. Each of these conditions could spur volatility in 2026.
For example, February airstrikes in Iran and its retaliations have roiled international and Middle East relations, as well as the flow of economically sensitive resources, including oil. In May, Jerome Powell’s term as Fed Chair will end. A new chairman has been tapped, and policy changes could follow. November U.S. mid-term congressional elections could lead to changes in the balance of power in Washington D.C. Meanwhile, inflation remains persistent, the business cycle could be shifting, and bond investors may demand a term premium should conditions falter.
For investors, volatility means changes in the prices of the securities held in their bond portfolios. The changes can present opportunities to capture value through TLC and TLH as they are presented, rather than waiting until tax-season or year-end.
A summary of our reasoning for year-round tax aware management is summarized in Figure 1.
Figure 1: Tax Loss Harvesting Approach
Tax-Aware Management: Capital Gains Tax
When capital losses reach a threshold deemed meaningful by our investment team,
Breckinridge pursues selling at a loss to offset current and/or future capital gains with the intention of optimizing an investor’s after-tax income.
For more specifics on tax-loss trading, consider reading the article on our website, Tax-Loss Harvesting in Fixed Income Portfolios. The goal of tax-aware trades is to reduce the impact of taxes on a client's overall portfolio or account. The potential for tax aware management to reduce a client’s overall tax liability is illustrated in Figure 2.
FIGURE 2: IMPACT OF TAX-AWARE MANAGEMENT
Tax aware management is intended to illustrate the potential tax benefit derived from tax loss trades. The impact of tax-aware management includes all portfolios in the Intermediate tax-Efficient Composite that participated in tax-loss management (tax loss harvesting trades and/or tax loss crossing trades) over the reporting period. The results of tax-aware management (gross of fees) for each portfolio were averaged together to determine the figures presented. This information is supplemental to the Intermediate Tax-Efficient Composite. Please refer to the GIPS Report for the Intermediate Tax-Efficient Composite. The impact does not represent an actual decrease in a client’s overall tax payment or liability. Clients should consult with their tax professionals regarding tax strategies and associated consequences. Impact of tax aware management is heavily influenced by interest rates and will fluctuate. Management Considerations section in the Disclaimers for more information about tax loss trading.
Tax-aware management includes the potential impact of any tax-loss harvesting and/or tax-loss crossing (depending on client preferences) that occurred during the reporting period and assumes any losses achieved will be used to offset gains elsewhere in a client’s portfolio. Trading for the purpose of tax loss harvesting may result in increased transaction costs. Replacement bond may be at a higher price and value of replacement bond may go down. Tax benefits of tax-loss harvesting may change or be limited due to potential legal changes or challenges by the IRS. The effectiveness of a tax-loss harvesting (TLH) strategy is largely dependent on each client’s entire tax and investment profile, including investments made outside of Breckinridge’s advisory services. As such, there is a risk that the TLH strategy used is not the most effective for every client and will not produce the benefits as described. When using cross transactions for TLH, the participating client accounts gain exposure to the tax-loss harvested bonds, which are subject to price fluctuations, received from other accounts.
Source: Breckinridge Capital Advisors as of February 2026. Please see our Intermediate Tax-Efficient GIPS report here.
Clients have the option to opt into TLH and TLC and may submit requests to harvest losses in their portfolio. Breckinridge portfolio managers monitor portfolios for tax-loss trading opportunities. Ongoing portfolio monitoring for tax-loss trading opportunities aims to ensure that losses during rate peaks, when bond price declines are typically greatest, are generally identified and executed as they occur. Attention to TLC and TLH opportunities throughout the year can potentially help avoid a need to move investment to cash while waiting for opportunities
Client attention to tax-loss trading also tends to increase as the year-end approaches, and investors grow more mindful of the approaching tax season. Spreading the trades throughout the year mitigates changing market conditions that might occur at year end.
Breckinridge's investment strategies are biased to high quality, investment grade bonds. High grade bonds have the potential to weather strained market liquidity when volatility is high. Investors tend to avoid lower quality bonds during volatile markets because they typically prove harder to trade. We believe technology is essential to effectively uncover tax-loss opportunities. Breckinridge’s portfolio management and information technology teams develop tools that support identification and execution of tax-loss trades.
We can scan individual positions across portfolios based on a range of parameters such as targeted loss levels. Our technology organizes data for thousands of portfolios managed across our platform, which can help portfolio managers identify favorable TLC trades. Potential benefits of cross trades include lower transaction costs than open-market trades and keeping assets invested, while preserving overall portfolio structure and strategy.
Additionally, Breckinridge can provide clients with after-tax reporting that includes performance analysis, gross and net fees, on both a pre-tax and after-tax basis. We can also provide a portfolio level breakdown of the impact of state income tax and tax-loss harvesting on after-tax holding period returns for the portfolio and the index.
In order to take advantage of market and economic events that create volatility, tax-aware investors need to monitor portfolios and be ready to act when opportunities arise. We feel an attentive tax-loss trading approach supported by integrated technology tools is essential to systematically harvesting losses when appropriate. Breckinridge’s full-year, all-market approach is intended to support clients’ efforts to achieve tax savings in the near term and greater after-tax wealth over the long term.
[1] There are differences between TLH and TLC transactions, and the cash effect varies. In most TLH transactions, a bond is sold to realize a loss and the proceeds of the sale are reinvested in a similar but not substantially identical bond. The sale of the original position generates cash temporarily, which is reinvested. Even if this is done near simultaneously, there is still a sale-and-repurchase process. There may be market exposure gap risk and transaction costs and wash sale rules must be managed. In a typical TLC transaction, trades are structured as cross trades, meaning securities are traded without needing to go out to the open market. Two accounts both with tax-loss harvesting needs sell bonds at a loss to each other, i.e., all sellers are also buyers. Cash involvement is economically minimized or eliminated by the simultaneous exchange of bonds between accounts. There is no meaningful cash drag or reinvestment lag. Transaction costs are reduced and a loss is realized for tax purposes. Even in TLC, from a settlement perspective, trades still clear through cash (delivery versus payment (DVP) or receive versus payment (RVP)). As a result, the portfolio experiences little or no cash drag
BCAI-03162026-cbswda6m (5/8/2026)
DISCLAIMER:
This material provides general information and should not be construed as a solicitation or offer of services or products or as legal, tax or investment advice. Nothing contained herein should be considered a guide to security selection, asset allocation or portfolio construction.
All information and opinions are current as of the dates indicated and are subject to change. Breckinridge believes the data provided by unaffiliated third parties to be reliable but investors should conduct their own independent verification prior to use. Some economic and market conditions contained herein have been obtained from published sources and/or prepared by third parties, and in certain cases have not been updated through the date hereof.
There is no assurance that any estimate, target, projection or forward-looking statement (collectively, “estimates”) included in this material will be accurate or prove to be profitable; actual results may differ substantially. Breckinridge estimates are based on Breckinridge’s research, analysis and assumptions. Other events that were not considered in formulating such projections could occur and may significantly affect the outcome, returns or performance.
Not all securities or issuers mentioned represent holdings in client portfolios. Some securities have been provided for illustrative purposes only and should not be construed as investment recommendations. Any illustrative engagement or sustainability analysis examples are intended to demonstrate Breckinridge’s research and investment process.
Yields and other characteristics are metrics that can help investors in valuing a security, portfolio or composite. Yields do not represent performance results but they are one of several components that contribute to the return of a security, portfolio or composite. Yields and other characteristics are presented gross of advisory fees.
All investments involve risk, including loss of principal. No investment or risk management strategy, including diversification, can guarantee positive results or risk elimination in any market. Periods of elevated market volatility can significantly impact the value of securities. Investors should consult with their advisors to understand how these risks may affect their portfolios and to develop a strategy that aligns with their financial goals and risk tolerances.
Active investing generally involves more risks than laddered strategies because active managers may take on greater market risk to outperform their index. There is no guarantee that either passive or active investing may achieve their objectives. Active strategies also tend to have higher management fees and operating costs than passive strategies. Investors should consider all the differences and risks before making any investment decisions. Active management does not guarantee a profit or protect against a loss.
Past performance is not indicative of future results. Breckinridge makes no assurances, warranties or representations that any strategies described herein will meet their investment objectives or incur any profits. Performance results for Breckinridge’s investment strategies include the reinvestment of interest and any other earnings, but do not reflect any brokerage or trading costs a client would have paid. Results may not reflect the impact that any material market or economic factors would have had on the accounts during the time period. Due to differences in client restrictions, objectives, cash flows, and other such factors, individual client account performance may differ substantially from the performance presented.
Actual client advisory fees may differ from the advisory fee used to calculate net performance results. Client returns will be reduced by the advisory fees and any other expenses incurred in the management of their accounts. For example, an advisory fee of 1 percent compounded over a 10-year period would reduce a 10 percent return to a 9 percent annual return. Additional information on fees can be found in Breckinridge’s Form ADV Part 2A.
Index results are shown for illustrative purposes and do not represent the performance of any specific investment. Indices are unmanaged and investors cannot directly invest in them. They do not reflect any management, custody, transaction or other expenses, and generally assume reinvestment of dividends, income and capital gains. Performance of indices may be more or less volatile than any investment strategy.
Fixed income investments have varying degrees of credit risk, interest rate risk, default risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa.
The effectiveness of any tax management strategy is largely dependent on each investor’s entire tax and investment profile, including investments made outside of Breckinridge’s advisory services. As such, there is a risk that the strategy used to reduce the tax liability of the investor is not the most effective for that investor. Breckinridge is not a tax advisor and does not provide personal tax advice. The tax consequences of Breckinridge’s tax loss strategies may be challenged by the IRS. Investors should consult with their tax professionals regarding tax strategies and associated consequences.
Tax laws and regulations are complex and subject to change at any time. These changes can impact tax consequences and investment results for investors, who should consult with a tax professional before making any decisions.
Tax loss harvesting may generate a higher number of trades in an account due to our attempt to capture losses. This can mean higher overall transaction costs to clients. To the extent that a client's custodian uses a different pricing source, cost basis or tax lot accounting, actual tax efficiencies could be greater or lower than what has been shown. Also, a client may repurchase a bond at a higher or lower price than the price at which the original bond was sold. The replacement bond is subject to price fluctuations.
Federal and local tax laws and rates can change at any time; changes to tax laws and rates can impact tax consequences for investors. Further, the Internal Revenue Service (IRS) and other taxing authorities have set certain limitations and restrictions on tax loss harvesting. The tax consequences of Breckinridge’s tax loss strategy may be challenged by the IRS. Investors should consult with their tax professionals regarding tax loss harvesting strategies and associated consequences.
Cross transactions will be used to facilitate tax loss harvesting in most cases. When using cross transactions for tax loss harvesting, participating client accounts gain exposure to the tax-loss harvested bonds received from other accounts. While Breckinridge generally selects bonds that, in its best judgement, will not change significantly in price, bonds nevertheless are subject to fluctuations in price, and the bonds received may go up or down in value.
Cross trades create a conflict as the adviser is advising clients on both sides of the transaction. Also, cross trades can result in more favorable treatment to one client over the other. There is no guarantee that the buying or selling client will receive the best prices available for the day. Breckinridge investors can opt out of tax loss harvesting and/or cross trading. In cases where an investor opts out of or is prohibited from cross trading, they may not receive the benefit of lower transaction costs versus trading in the open market and the same price as those investors participating in cross trades.
Separate accounts may not be suitable for all investors.
Breckinridge believes the data provided by unaffiliated third parties to be reliable but investors should conduct their own independent verification prior to use. Some economic and market conditions contained herein have been obtained from published sources and/or prepared by third parties, and in certain cases have not been updated through the date hereof. All information contained herein is subject to revision.
Certain third parties require us to include the following language when using their information:
BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg does not approve or endorse this material or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
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