U.S. Treasury Index
as of March 31, 2014
Fund Commentary
After a difficult 2013, U.S. Treasuries performed well during the first quarter. The government bond market was supported by a string of economic data that came in below expectations in the first two months of the year. For instance, U.S. nonfarm payrolls were sluggish during the frigid months of January and February. Fourth-quarter gross domestic product rose 2.6% in the third revision, suggesting a slowdown from an inventory-driven third quarter. Treasuries were also supported by a “flight-to-quality” that was fueled by volatility in emerging market currencies and the conflict between Russia and Ukraine.

While these factors aided bond market performance, the benefits were largely confined to longer-term Treasuries. Yields on 10- and 30-year issues declined by 31 (0.31%) and 41 basis points (0.41%), respectively, but five-year Treasury yields fell just two basis points (0.02%) and two-year Treasury yields rose four basis points (0.04%). The primary cause of the flattening yield curve was that even as longer-term bonds rallied, shorter-term issues came under pressure when U.S. Federal Reserve Chair Janet Yellen suggested that the first interest rate hikes may occur sooner than the market was expecting.

The Barclays U.S. Treasury Index returned 1.34% during the quarter. As designed, the Portfolio performed in line with the Index with a total quarterly return of 1.26%. We continue to invest with the goal of providing returns that closely approximate those of the Index.
Investor Profile

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.
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Not FDIC insured | May lose value | No bank guarantee

†Northern tax-exempt fixed income funds' and Northern High Yield Fixed Income Fund's Average Duration is calculated using the modified duration formula. Other Northern fixed income funds show the option-adjusted duration. Duration is a measure of a bond fund's sensitivity to changes in interest rates.

*Distribution rate and tax-equivalent distribution rate represent the annualization of the Fund's distributions for the prior month ending on the date shown, including capital gain distributions. The 30-day SEC yield and tax-equivalent 30-day SEC yield represent the annualization of the Fund's net investment income, excluding capital gain income. The tax-equivalent distribution rate and tax-equivalent 30-day SEC yield are based on an assumed tax rate of 47.9% for Arizona, 55.7% for California and 43.4% for national municipal funds.

**Per share paid out March 24 with a record date of March 21. The amount shown represents dividends paid for net investment income and excludes distributions from capital gain income.

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