First Quarter 2012Market CommentaryDuring the quarter market participants began to give more weight to strengthening econo...
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National Investment Fund for Credit Unions (NIFCU$) 1st Quarter 2012 Market Commentary

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During the quarter market participants began to give more weight to strengthening economic quarter, news, discounting the Fed’s stated commitment to hold short-term interest rates low into 2014.
The steady decline in weekly initial unemployment claims, which is now translating into monthly job gains, is especially encouraging. For more info: http://www.nafcu.org/nifcus/

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National Investment Fund for Credit Unions (NIFCU$) 1st Quarter 2012 Market Commentary

  1. 1. First Quarter 2012Market CommentaryDuring the quarter market participants began to give more weight to strengthening economic quarter,news, discounting the Fed’s stated commitment to hold short-term interest rates low into 2014.The steady decline in weekly initial unemployment claims, which is now translating into monthlyjob gains, is especially encouraging.Technical factors, as well as growth optimism, saw rates drift modestly higher across the Treasuryyield curve, with the 2-year note rising 13 basis points to a high yield of 0.39% on March 20th,before ending the quarter at 0 33% The Fed’s Operation Twist program of selling shorter maturity 0.33%. Fed sTreasuries to extend their portfolio holdings has resulted in an unusually high amount of under 3-year paper on dealer balance sheets, just as the Treasury entered its annual period of seasonalhigh bill issuance ahead of April tax receipts. This pulled overnight repurchase agreement levelsup slightly, which traded above 0.10% for much of the quarter. These trends have been helpful inmanaging the portfolio over the quarter, and even the usual quarter-end squaring of dealerbalance sheets did not materially depress overnight repurchase agreement levels.Towards the end of the period, mixed U.S. economic readings, further public pronouncements bydomestic policymakers and evidence of financial stresses resurfacing in Italy, Spain and Portugal,had the Treasury markets rallying once again. Although 4Q 2011 GDP was finalized at a solid+3.0%, there is some concern that 2012 could follow last year’s pattern of second half slowing.Rising gasoline prices, approaching a $4.00 nationwide average at the pump, are at an 11-monthhigh; although they have yet to impact consumer spending as gains in the stock markets over thequarter seem to be cushioning sentiment.The mainstream press has picked up on the story regarding the substantial fiscal headwinds thatthe economy will face beginning in January of 2013. Despite agreement by Congress to extendthe payroll tax holiday and other interim stimulus measures through year end, as the Presidentialelection draws closer, the likelihood of anything material being accomplished to get the U.S. fiscalhouse in order is remote. We believe Federal Reserve stimulus is still the main driver of economicrecovery.The amount of eligible short term securities available for purchase by NIFCU$ has contracteddramatically over the past five years. The trend is expected to continue, as stronger domesticbank issuers either have no funding needs or prefer to term out their debt. Risk management andmaintaining higher liquidity positions will remain integral to our strategy as the U.S. financialmarkets are still at risk of contagion from Euro-zone stresses. Euro zone Hillary Elder, Team Leader NIFCU$  350 California Street, 11th Floor  San Francisco, CA 94104 Toll-Free (800) 634-6521 www.nifcus.com

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