The U.S. Federal Reserve Board surprised market watchers by delaying plans to taper its quantitative easing 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 Federal Open Market Committees (FOMC) 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 market enters the next quarter struggling for direction amid the first government shutdown in 18 years, while political posturing over the debt ceiling threatens the governments ability to meet its obligations at the end of October.
With a return of 0.31%, the Fund slightly underperformed its benchmark for the quarter. Though an overweight to mortgage-backed securities contributed to performance, this was offset by the Funds yield curve positioning and duration.
If you're a conservative investor who prefers the income and quality offered by government securities, you may find this Fund attractive. It is best suited for income-oriented investors who prefer low risk.
- Invest primarily in securities issued or guaranteed by the U.S. government or by its agencies.
- Select high-quality securities with maturities, under normal circumstances, between two and five years, with risk exposure managed in an effort to achieve reasonable returns.
- Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.