Chandler Bond Market Review

Market Summary April 2013

Recent data suggests economic growth remains modest.  Job growth was weaker than expected in March.  Nonfarm payrolls rose just 88,000 in the month, well below the consensus forecast of 193,000.  The unemployment rate fell to 7.6% from 7.7% in February, but the decline was driven by a steep drop in the labor force.  The average nonfarm payroll growth over the past 3 months has been 168,000 per month.  Recent manufacturing trends have been mixed while housing trends remain favorable.  Overall, economic data weakened in March relative to trends in February, which may suggest the impact of fiscal tightening (including sequestration which went into effect March 1) is beginning to ripple through the economy.

 Yields remained within a relatively tight range at low levels in March.  Overall, yields continue to be influenced by the Fed’s accommodative monetary policy.

 The Federal Open Market Committee left policy rates unchanged at its March meeting.  Overall, the Fed provided a modestly better assessment of the economy and noted the labor market has improved in recent months.  The Fed also highlighted the housing market has continued to strengthen, but fiscal policy has become more restrictive.  In a press conference after the March FOMC meeting, Fed Chairman Bernanke indicated that at some point the central bank is likely to adjust the pace of its asset purchases.  For the time being, the Fed continues to purchase mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.  The Fed is forecasting GDP growth of 2.3% – 2.8% and sees the unemployment rate falling to between 7.3% – 7.5% this year.

 

Treasury Yields April 2013

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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