Chandler Bond Market Review

Market Summary September 2012

Treasury rates were little changed in August amidst a still sluggish domestic economic environment and ongoing concerns about Europe. Overall, rates continue to be influenced by the Federal Reserve’s accommodative monetary policy and their desire to keep interest rates contained.

The domestic economy continues to grow at a slower than desired pace. Meanwhile, concerns about the European debt crisis continue to create volatility in the financial markets, and unease about the U.S. potentially reaching a “fiscal cliff” at the end of this year is building. The August employment report showed that the economy added just 96,000 jobs, lower than the consensus forecast.

As largely expected by market participants, the Federal Open Market Committee left policy rates unchanged at its September meeting and announced additional economic stimulus measures in the form of “QE3”. The Federal Reserve will purchase additional agency mortgage-backed securities at a pace of $40 billion per month, for an open-ended period of time. The Fed also expects to keep the fed funds rate at an exceptionally low level through at least mid-2015 (vs. previous guidance of through late 2014). The Fed continues to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities, and said that “Operation Twist” will continue as planned through the end of this year. Overall, the Fed’s actions are aimed at putting downward pressure on long-term interest rates and fueling stronger economic growth. In its statement, the FOMC’s overall assessment of the economy was more upbeat compared to its August statement. Despite this improvement, the Committee’s decision to move forward with QE3 is consistent with its mandate of fostering maximum employment and price stability.

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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

This entry was posted in Market Commentary. Bookmark the permalink.