Chandler Bond Market Review

Market Summary February 2012

Treasury rates in the belly of the yield curve moved lower in January, while shorter rates and the long end moved modestly higher. Domestic economic indicators continued to improve during the month, but not enough to push interest rates significantly higher. Uncertainty about global growth continues to affect the financial markets keeping demand for dollar based assets firm. Operation Twist, which doesn’t expire until June, is also keeping a lid on rates.

U.S. economic data over the last several weeks has been indicative of a slow-to-modest growth environment. The manufacturing sector continues to show strength and the labor market is improving. In January, payroll jobs grew by 243,000, much better than the 135,000 boost that the market was expecting. The unemployment rate dropped to 8.3% in January from 8.5% in December. After the employment report, comments from Federal Reserve Chairman Bernanke remained dovish; foreshadowing the Federal Reserve does not intend to alter its accommodative stance. Though recent economic indicators have improved, we remain cautious about the global economy, particularly in light of the ongoing turmoil in Europe and concerns about decelerating growth in China. A severe contraction in the European economy caused by its debt crisis could impair the U.S. economic recovery. Furthermore, though the overall domestic economy seems to be strengthening, the housing sector remains sluggish and consumer spending continues to be uneven.

In January, the Fed announced that it would retain the policy rate range of 0.0-0.25%. Notably, the Fed stated that it now expects the fed funds rate to remain exceptionally low through late 2014, versus its previous statement that rates would remain exceptionally low through mid-2013; otherwise, the statement was virtually unchanged from December. The Fed continues to believe that the economy is expanding moderately despite a slowing in global growth.

Use as Yield Curve Quote:

Title: TREASURY YIELDS MOSTLY LOWER IN JANUARY

Treasury yields moved modestly lower in January, with the exception of the long end of the curve which moved slightly higher.

RISKS AND OTHER IMPORTANT CONSIDERATIONS

This report is provided for general information purposes only and should not be construed as specific legal, tax, or financial planning advice. All opinions and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice. This report is not intended to constitute an offer, solicitation, recommendation or advice regarding any securities or investment strategy. This information should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest, credit, and market risk. Interest rate risk: the value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market in general could decline due to economic conditions,especially during periods of rising interest rates.

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