Chandler Bond Market Review

Market Summary November 2013

Economic data has been mixed. Job growth was stronger than expected in October, but the unemployment rate edged up to 7.3% from 7.2%, reflecting a rise in temporary layoffs during the government shutdown. Nonfarm payrolls increased by 204,000 in October versus the consensus forecast of 120,000. In addition, the net revisions for job growth in August and September were +60,000. Average nonfarm payroll growth over the past three months has been about 201,000 per month. Overall, employment growth has been favorable. Manufacturing data has also been relatively healthy. However, there are signs that consumer spending may be softening and the housing sector has slowed in recent months. Overall, we believe the economy remains on a slow growth trajectory.

Treasury yields have remained volatile in the past few months as the outlook on Fed policy and long-term fiscal policy remains uncertain.

The FOMC left policy rates unchanged at its October meeting and did not announce any changes to the pace of its bond purchases. The Fed continues to indicate that policy changes will be data dependent and that the general thresholds are an unemployment rate of 6.5% and/or expectations of 2.5% inflation. The timing of Fed tapering remains unclear, but we believe uncertainty about the country’s longer-term fiscal policy will delay the unwinding of quantitative easing by the Federal Reserve until sometime next year. The next FOMC meeting is scheduled for December 17-18.

Treasury Yields November 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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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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