Chandler Bond Market Review

Market Summary November 2012

The treasury yield curve rose in October, driven by modest improvements in domestic labor market and housing market data, as well as increased optimism that the European Union would support a bailout of Spain if necessary (reducing the safe haven appeal of U.S. Treasuries). However, 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. Recent data suggests that the housing market is beginning to rebound, but unemployment remains elevated and manufacturing trends continue to be lackluster. In October, nonfarm payrolls grew by 171,000 (better than expected) but the unemployment rate edged up to 7.9% from 7.8% in September. The outlook for the global economy remains uncertain as Europe still struggles to contain its debt crisis, economic growth trends in China have slowed, and concerns are heightened about the U.S. potentially reaching a “fiscal cliff” at the end of this year.

The Federal Open Market Committee left policy rates unchanged at its October meeting and affirmed its plan to keep the fed funds rate at an exceptionally low level through at least mid-2015. As expected, the Fed did not announce any additional stimulus measures and their assessment of the economy was little changed from September. The Committee did note, however, that there had been an uptick in household spending as well as inflation. The Fed said that it would continue to purchase additional agency mortgage-backed securities at a pace of $40 billion per month, for an open-ended period of time. “Operation Twist” will also continue through the end of this year. The next FOMC meeting is scheduled for December 11-12.

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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