Chandler Bond Market Review

Market Summary July 2013

The economy continues to grow slowly. Nonfarm payrolls rose 195,000 in June, which was better than the consensus forecast of 161,000.  Average nonfarm payroll growth during the second quarter of 2013 was about 196,000 per month.  The unemployment rate remained unchanged in June at 7.6% due to an increase in the labor force.  Overall, the labor market continues to improve.  Manufacturing trends are beginning to show modest improvement as well, while housing trends remain favorable in spite of the recent jump in interest rates.  Consumer spending also remains healthy. 

The Treasury yield curve steepened again in June as Fed policymakers continued to discuss winding down quantitative easing. The move has also been influenced by a modest improvement in economic data. 

The Federal Open Market Committee left policy rates unchanged at its June 18-19 meeting and assured investors that policy changes continue to be data dependent.  The Fed noted that the economy continues to grow at a moderate pace.  The labor market has continued to improve, but unemployment remains elevated.  Inflation is running below target.  The Fed will continue 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.  During his press conference, Chairman Bernanke indicated that the Fed could begin tapering bond purchases later this year and that asset purchases could end in 2014.  However, he emphasized that Fed policy will depend on the state of the economy.

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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