Chandler Bond Market Review

Market Summary June 2013

Recent economic data continues to point to modest growth. Nonfarm payrolls rose 175,000 in May, slightly better than the consensus forecast, but the unemployment rate rose to 7.6% from 7.5% in April.  Average nonfarm payroll growth over the past 3 months has been about 155,000 per month.  Meanwhile, recent manufacturing trends have deteriorated modestly. Housing trends remain mixed, but we believe the overall trajectory remains positive.  Consumer spending seems to be holding up in spite of this year’s increase in payroll taxes.  Overall, the economy continues to muddle along. 

The Treasury yield curve steepened in May, driven by a slight decline in short-term yields and a more meaningful increase in intermediate and long-term yields. The move in intermediate and longer-term rates has been influenced by a modest improvement in economic data, as well as increased speculation that the Fed could begin tapering its bond purchases. 

At a congressional hearing in May, Fed Chairman Bernanke said the Fed could take its first step toward winding down its quantitative easing (QE) program at one of its “next few meetings,” but he also cautioned against reducing QE too quickly or aggressively.  Minutes from the April 30-May 1 FOMC meeting indicated that some members were prepared to start pulling back on bond purchases as early as this month, while others remained hesitant.  The modest growth in May payrolls probably wasn’t enough to persuade Fed officials to announce a tapering of bond purchases at this month’s FOMC meeting, in our view.  There isn’t a clear consensus among Fed officials about when to begin unwinding QE.  The next FOMC meeting is scheduled for June 18-19.

Market Summary June 2013

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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