Chandler Bond Market Review

Market Summary October 2013

Economic growth remains lackluster. The partial government shutdown coupled with disagreement over the terms of increasing the US debt limit are likely to negatively impact GDP growth in the fourth quarter. We expect the rhetoric around an increase of the debt ceiling to remain elevated with a resolution taking place at the eleventh-hour, consistent with recent negotiations in Washington. Non-farm payrolls are typically released on the first Friday of every month providing a rich source of data about the strength of the economy. Due to the government shutdown data was not released on October 4; market participants had to rely on more seasoned data as well as secondary private data sources to make conclusions about the direction of the economy. Non-farm payrolls had been trending downward, with a three-month moving average of 148,000 in August versus a three-month moving average of 182,000 in June of this year. Additionally, President Obama formally announced Janet Yellen as the nominee to replace Ben Bernanke as Chairperson of the Federal Reserve; the confirmation process will take place in the fourth quarter of 2013.

In September, the markets were surprised when the Federal Reserve did not announce a reduction in its bond buying program (Quantitative Easing) at the September 18 Federal Open Market Committee (FOMC) meeting. Highly stimulative monetary policy remains in place with the Fed Funds rate remaining in the 0.00 to 0.25% range. The Fed continues to buy a total of $85 billion per month, split between Treasury and Mortgage Backed Securities. The Fed refrained from scaling back Quantitative Easing based on concerns about the strength and sustainability of the recovery; Fed members are looking for more confirming positive data before changing policy. We expect interest rate volatility to remain elevated as the market continues to speculate when the reduction in Quantitative Easing will commence.

Market Summary October 2013

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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