Chandler Bond Market Review

Market Summary March 2013

The US economy has grown at a modest pace during the first quarter. Job growth was better than expected in February. Nonfarm payrolls rose 236,000 in the month, exceeding the consensus forecast of 171,000, while the unemployment rate fell to 7.7% from 7.9% in January. The average nonfarm payroll growth over the past 3 months has been 191,000 per month. Recent manufacturing trends have picked up slightly and housing trends remain favorable. Meanwhile, consumer spending trends have held up fairly well, in spite of headwinds from higher payroll taxes, rising gas prices, a delay in tax refunds, and ongoing uncertainty about the government’s fiscal policy. 

Yields remained within a relatively tight range at low levels in February. The US Treasury yield curve flattened as short-term yields rose slightly while longer-term yields declined. Overall, yields continue to be influenced by the Fed’s accommodative monetary policy.

The minutes from the January FOMC meeting indicated that the debate among Fed officials on quantitative easing (QE) is growing. Some Fed members voiced concerns about ongoing bond purchases and their longer-term impact on the economy and the threat of inflation, while others worried about cutting back prematurely on accommodation and the risk of rising interest rates. The minutes raised anxiety that the Fed will begin unwinding its policies before there is a meaningful pickup in employment. However, in early March, Chairman Bernanke defended continuing the central bank’s bond buying programs and signaled that the Fed remains committed to providing stimulus to the economy. He cautioned that raising interest rates too soon would be harmful to the economy. The Fed is maintaining its highly accommodative stance for now, and will continue to debate the cost/benefit of QE. The next FOMC meeting is scheduled for March 19 and 20.

Treasury Yields March 2013


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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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