Fort Walton Beach Council agenda — 09-25-12 regular — reading text

EM lust s° b EMEM LeunLeun AmaxAmax pp nu rnnv. in n% -, EaS 9. 11 6t%° n snmre . MSL, f» ww ra Packet MP 91T Page  TheThe MarketMarket EnvEnv& & 1z1z U.U. S.S. DollarDollar InternatlonalInternatlonal IndexIndex AttributionAttribution 88 CountryCountry DetailDetail I% I ILI I Lll ex 22 1% 1l4% Consumereaplo 11% 35% l 1% s— s— MSCIMSCI (— (— ms[ms[ ll I.)I.) PaoketPaoket Pq.Pq. 1515 PagePage 88  The Market Env & 1s Domestic Bond Sector & BroatllGlobal Bond Market Performance As & June all ] q' Quarter Performance _ All feed income benchmarks posted positive returns for the second quarter with the lone exception being the Barclays Global Aggregate ex US index. The broad based domestic bond market rose + 2156 for the quarter Across the various segments of the domestic market, U S. E- TIPS and U. S. Treasuries were the largest winners posting returns Of 3 2% and + 2 8% respectively. The primary driver of U. S Treasury nleh view performance was the sharp drop In yields on longer dated! maturities. r. eewry For the quarter. the long -end of the yield curve returned + 10. 6 % versus Mortgage only + 1. 6% for the shorter -tlated bontls. Given the Proem- economic concerns in Europe and their impact globally, investors shifted to the c, a iG safely' of U. S. Treasuries, which outpaced their Corporate Bond and 7IFS MSS counterparts by 31 and 115 bps, respectively. Within the Corporate Sector, investors favored the A and Baa -rated bonds over the I Aggregeu AAA and AA -rated sectors. Finally, lagging all investment grade sectors were High Yield bonds which returned + l. 8 % for the quarter. mrermemme Ase 13%_ Gruel A9a+ Js e Many of the performance trends listed above have materialised Over the past twelve months as well with all key indices posting positive results. YearYear PerformancePerformance U S TIPS led the way with a return of + 11 ]% followed by + 91% for Corporate Bonds, + 90% for Treasuries, and + 5. 0% for MBS. Within the Corporate Bond space, investors have been rewarded for assuming xA the risk in the lower -rated credits as the Bats-rated sector retumetl 10 0% and beat the other credit levels a Tie, Vlel Just as In previous quarters , the rally in longerdated securities reae bensfifted the Barclays Aggregate Index relative to Its shorter * Intermediate component The Aggregate ended 12 bps ahead for the Monyze quarter to post a 219 bps advantage on a trailing one -year basis. C, reml Finally, High Yield and Global Bonds continued to lag domestic sectors a as they remain weighed down by macro concerns . smarme ien Gail Aee. 0 i^i^ seems rre, cane the Page 9  The Market Env 0. t.a Market Rate & Yield Curve Comparison Year Trailing Market Rates During the quarter, the macroeconomic parried was dominated by the her rund¢ fTe — Ten crawl — 3Mon GOw IW ongoing European aise and weak U. S. economic data For much of the occe"" nes, "' a quarter, investors remained focused on The Federal Reserve and the 1 11 likelihood of additional monetary stimulus. On June 20th, after much 3. 00 uncertainty and speculation, the Fed announced a $ 267 billion extension of Operation Twist through the remainder of 2012. For the quarter, the zw short- end of the yield curve was unchanged, but the longen l of the yield iW curve continued to move lower In response to the weak economic signals and widespread uncertainty The 10 -year Treasury began the quarter a yield of 2. 23 h and finished 56 bps lower at 1, 67%. The 1. 67 % yield on the 10 -year represented a 72 bps drop from Its peak on March 19, 2012. s. as am I re Given the share move in long -term Treasuries and the zerobound oa. n oa -n tae -12 nw-12 Iem11 environment for short-term yields, investors continue to experience a L". 11 neg 11 flattening yield curve. This is a trend that has been onu ning since 2909. At current levels, Investors must extend out on the curve — to the 10 year Treasury Yield Curve point or longer — to realize a yield in excess of the core rate of inflation. 1. 12n1120 10 Up to this point, as the economic uncertainty in Europe and elsewhere s o0 otrzrsvmIs o rzioarz II — e-- kavmi2 has persisted imeslors in longer -dated bonds have been rewarded over the past few years for assuming the inherent interest rate dsk. Going P forward, as the yield curve has flattened, investors are faced with less and 4. 00 O less upside potential, even in longer dated bonds. 3w O zo0 z so 2. 00