Chandler Bond Market Review

Market Summary October 2012

The treasury yield curve steepened slightly in September, though overall treasury rates were little changed amidst a still sluggish domestic economic environment and an uncertain outlook for the global economy. Rates continue to be influenced by the Federal Reserve’s accommodative monetary policy.

The domestic economy continues to grow at a slower than desired pace, though many investors are expecting that exceptionally easy monetary policy will help to fuel stronger GDP growth heading into next year. The outlook for the global economy remains uncertain as Europe still struggles to come up with a comprehensive long-term plan to contain the region’s debt crisis, and unease about the U.S. potentially reaching a “fiscal cliff” at the end of this year is building. Payroll growth in the U.S. has been modest, with payrolls up 114,000 in September, and the unemployment rate remains elevated.

Over the past month, we believe financial markets have largely been influenced by the Fed’s policy action, rather than economic fundamentals, as investors heed to the old adage “Don’t fight the Fed.” The Federal Open Market Committee left policy rates unchanged at its September meeting and announced additional economic stimulus measures in the form of “QE3” with plans to 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. Overall, the Fed’s actions are aimed at putting downward pressure on long-term interest rates, keeping mortgage rates low to help stimulate the housing market, and fueling stronger economic growth. The Fed lowered its economic growth forecast for the year, but raised its GDP forecasts for 2013 and 2014, largely reflecting the anticipated stimulative effects of QE3.

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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