Chandler Bond Market Review

Market Summary March 2014

Harsh winter weather has skewed some of the recent economic data, but we believe the economy continues to grow at a slow pace. In spite of the weather, the February employment report was stronger than expected. Nonfarm payroll jobs grew by 175,000 in February, versus expectations of 150,000. Private payrolls grew by 162,000 and government jobs grew by 13,000. Although payrolls were stronger than expected, the unemployment rate rose to 6.7% in February from 6.6% in January, driven by new entrants to the labor force. Wage growth rose 0.4%. The weather continued to be unusually severe during the month of February, so we believe the underlying trend in employment may be stronger than the past few months of payroll data suggest. Meanwhile manufacturing, housing, and consumer data has been mixed. We expect economic data to improve in the spring and hope to get a better read on underlying economic trends as the weather normalizes.

We believe the February employment report was more than strong enough to keep the Fed on track with tapering its asset purchases. The next FOMC meeting will be held on March 18-19, at which time we expect the Fed will announce another $10 billion reduction in asset purchases. At its January 28-29 meeting, the FOMC announced that it would trim its asset purchases in February to a pace of $30 billion per month in MBSs and $35 billion per month in longer-term Treasuries. We believe the process of unwinding will likely continue at a steady pace throughout 2014, and that the trajectory of economic growth would have to deteriorate meaningfully for the Fed to change course.

The yield on the two-year Treasury note decreased in February, driven by weaker domestic economic data coupled with fears about emerging markets and currencies which has been fueling a flight to quality.

 

Treasury Yields March 2014

 

 

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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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