Chandler Bond Market Review

Market Summary January 2014

Overall, we believe the economy continues to be on a slow growth trajectory driven by modest ongoing improvement in the labor market. The December employment report was disappointing, but unfavorable weather may have been a contributing factor. Nonfarm payroll jobs grew just 74,000 in December (versus expectations of 200,000). Average nonfarm payroll growth during the fourth quarter of 2013 was about 172,000 per month, compared with average monthly growth of about 167,000 during the third quarter of 2013. The unemployment rate dropped to 6.7% in December from 7.0% in November, but the decline was largely driven by a decline in the labor force. The labor participation rate fell to 62.8% in December, matching the level in October which was the lowest since 1978. Meanwhile, manufacturing, housing, and consumer data has been mixed.

The FOMC began tapering its asset purchases by $10 billion (evenly split between Treasuries and MBSs) this month, after announcing the decision to begin tapering at the December FOMC meeting. The Fed continues to purchase MBSs at a pace of $35 billion per month (down from $40 billion) and longer-term Treasuries at a pace of $40 billion per month (down from $45 billion). The path toward winding down quantitative easing continues to be data dependent, and we believe the process of unwinding will likely continue at a steady pace throughout most of 2014. However, if the next labor report for January is equally as disappointing as December, it could raise questions about the path the Fed will take toward unwinding quantitative easing. The minutes from the December FOMC meeting indicated that there was already significant debate about the timing and pace of tapering. The next FOMC meeting will be held on January 28-29. Either way, we expect that the Fed will continue to support economic growth with low policy rates throughout the coming year.

Treasury yields have continued to be somewhat volatile, as market participants have reacted to economic data releases and speculation about the pace of the Fed’s tapering.

Market Summary January 2014


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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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