Thoughts from our Domestic Fixed Income Team
The door has closed on 2013 and a new set of challenges has begun to take form for fixed income investors. In terms of Federal Reserve monetary policy, we feel the credit markets have largely incorporated the initial tapering of the Fed’s monthly purchases of U. S. Treasury and mortgage-backed securities across all sectors. In our view the recent public fascination with this single aspect of monetary policy will likely diminish looking forward, and the market’s focus will shift over upcoming quarters for possible clues as to when changes to the Fed’s policymakers’ near-zero short- term interest rate targets will begin. Tracking employment measurements, economic strengthening, housing sector activity, and perhaps possible inflationary pricing pressures may then grow to dominate investor attention. And so eyes and ears will turn quickly to the new Chairwoman, Janet Yellen, for signals if and when economic growth is deemed sufficient for the Fed to begin a more traditional policy course, tightening current measures and fostering the associated related interest rate rises.
Submitted by: Howard S. Potter, Senior Fixed Income Portfolio Manager
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