Chandler Bond Market Review

Market Summary August 2012

Treasury rates declined moderately in July as domestic economic activity weakened and concerns remained about the European sovereign debt crisis. The Treasury yield curve also flattened as longer term rates fell more than shorter term rates. The financial markets continued to be supported by the expectation of additional measures to stimulate economic growth from global central banks.

The domestic economy has slowed and we believe downside risks remain. Uncertainty regarding the European debt crisis continues to create significant volatility in the financial markets, and concerns about the U.S. reaching a “fiscal cliff” are rising here in the U.S. The July employment report showed that the economy added a better than expected 163,000 jobs. The report reverses four months of disappointing jobs reports and may be more indicative of the underlying trend in the labor markets. While we still expect positive GDP growth over the next few quarters, we believe growth is likely to be quite sluggish.

In August, the Federal Reserve Open Market Committee left policy rates unchanged at a range of 0-0.25% and was more cautious about its outlook for the economy. The Fed said it “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” Financial market participants interpreted that the FOMC statement signaled a greater likelihood of further monetary policy stimulus in the future.

Treasury Yields August 2012


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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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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