Chandler Bond Market Review

Market Summary September 2013

The economy remains on a slow growth trajectory, and the labor market continues to improve modestly. Nonfarm payrolls rose 169,000 in August, which was less than the consensus forecast of 175,000. Average nonfarm payroll growth over the past three months has been about 148,000 per month. The unemployment rate declined to 7.3% from 7.4% due to a decline in the labor participation rate. Overall, the labor market continues to improve at a lackluster pace.  Manufacturing and consumer spending trends have been mixed. Housing trends remain generally positive, but there are some signals that rising interest rates could begin to pressure the sector. Meanwhile, geopolitical concerns and uncertainty about Fed policy have continued to create volatility in the financial markets. 

 There has also been increased volatility in Treasury yields over the past few months. In August, rates generally increased, particularly in the 3-year to 10-year portion of the curve. 

 The timing of future Fed tapering remains uncertain, but several market participants are expecting the Fed to announce a modest reduction to their bond buying program at the next Federal Open Market Committee meeting on September 18. For the past few months, the Fed has been signaling that changes to the pace of its bond purchases are ahead, but hasn’t pinpointed the magnitude or timing of the changes.  At its previous meeting in July, the FOMC left the fed funds rate unchanged and we expect the fed funds rate to remain unchanged for at least the next six months. The Fed continues to assure investors that all policy changes will depend on the state of the economy, and that the general thresholds for contractionary policy action are an unemployment rate of 6.5% and/or expectations of 2.5% inflation.

Market Summary September 2013

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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