Chandler Bond Market Review

Economic Roundup September 2012

Consumer Prices
In July, overall CPI inflation eased to 1.4% on a year-over-year basis. Consumer prices remained soft, reflecting a decline in energy prices. The year-over-year Core CPI (CPI less food and energy) edged down to 2.1% in July, from 2.2% in June. The core inflation rate remains slightly higher than the Fed’s inflation target of 2.0%.

Labor Markets
The August employment report showed that the economy added just 96,000 new jobs, below the 125,000 consensus estimate. In addition, the net revisions for June and July were down 41,000. The unemployment rate dropped to 8.1% in August from 8.3% in July, but this was mainly due to a decline in the labor force. The employment report continues to reflect an overall slow pace of growth in the domestic economy.

Retail Sales
In July, retail sales rose 4.1% on a year-over-year basis. On a month-over-month basis, retail sales rose 0.8% in July, exceeding the consensus forecast of 0.3%. Consumer spending has rebounded from the depths of the recession, but recent activity has slowed down. Elevated unemployment levels and a recent decline in consumer confidence are likely restraining consumer spending.

Housing Starts
Single-family housing starts declined 6.5% to 502,000 in July, following a 4.7% rise in June. July starts were close to expectations. The housing market appears to have stabilized and some data has surprised to the upside this year.

Credit Spreads September 2012Economic Data September 2012

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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