The Federal Reserve surprised investors by delaying plans to taper its monthly asset purchase program when it met on September 18. The Feds statement reversed a sell-off that had seen 10-year Treasury yields breach the 3% level just two weeks earlier, as the bond market had fully expected a tapering announcement at the Feds September meeting. By the close of the third quarter, 10-year yields had fallen back to 2.68%, and the yield curve reversed most of the steepening that had occurred since the end of June. The S&P 500® Index gained 5.24% during the period, with the Index reaching a new all-time intraday high of 1,729.86 on the day of the Fed meeting. Crude oil gained 6% in the second quarter, and Treasury inflation-protected securities (TIPS) breakeven inflation widened across the yield curve.
U.S. nonfarm payrolls came in below expectations for the months of August and September, with downward revisions to prior months, while unemployment fell to 7.3%. Second-quarter gross domestic product (GDP) was 2.5% following initial estimates of 2.6%.
The Barclays U.S. Treasury Index returned 0.10% during the third quarter. As designed, the U.S. Treasury Index Fund performed in line with the Index, with a total return of 0.06%, net of fees. The Treasury yield curve steepened during the period but flattened during the last two weeks of the quarter, in light of the Federal Open Market Committees (FOMC) announcement. Two-year Treasury yields fell four basis points (0.04%), while five-year yields were flat. Additionally, 10-year yields rose 12 basis points (0.12%) and 30-year yields rose 18 basis points (0.18%). Going forward, we will continue to invest with the goal of providing returns that closely approximate those of the Index.
If you are an income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. Treasury market then this Fund may be right for you. It offers a diversified portfolio of Treasury securities approximating the Barclays U.S. Treasury Index.
- Passively managed in an effort to replicate the performance and composition of the Barclays U.S. Treasury Index.
- Invest substantially all (and at least 80%) of its assets in a representative sample of the U.S. Treasury obligations included in the Index.
- Provide investors with a way to gain broad exposure to U.S. Treasury market.