Chandler Bond Market Review

Market Summary August 2013

The economy continues to grow at a slow pace driven by modest improvement in the labor market. Nonfarm payrolls rose 162,000 in July, which was less than the consensus forecast of 175,000.  Average nonfarm payroll growth over the past 3 months has been about 175,000 per month.  The unemployment rate declined to 7.4% from 7.6%.  Overall, the jobs report for July was weak, but the labor market continues to improve.  Meanwhile, manufacturing trends have been showing positive momentum over the past few months.  Housing trends also remain favorable, but there are some early signals that the recent jump in interest rates is beginning to pressure homebuyers. 

 There has been increased volatility in Treasury yields over the past few months as Fed policymakers discuss winding down quantitative easing. In July, intermediate-term rates declined while very short- and longer-term rates increased.  

 The Federal Open Market Committee left policy rates unchanged at its July 30-31 meeting and did not announce any changes to the pace of its bond purchases.  The Fed continued to assure investors that policy changes will be data dependant and that the general thresholds are an unemployment rate of 6.5% and/or expectations of 2.5% inflation. The Fed slightly downgraded its view of the economy by stating that “economic activity expanded at a modest pace” versus the June statement that “economic activity expanded at a moderate pace.”  There was no press conference after the release of the July FOMC statement, leaving market participants to continue speculating about the timing of future Fed tapering.  The Fed has signaled that changes to the pace of its bond purchases are ahead, but the timing and magnitude remain uncertain and will depend on the economy.

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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