October 9, 2014

The Markets

During the third quarter of 2014, U.S. investors remained neutral but anxious during the quarter despite mixed economic signals, monetary policy concerns, and geopolitical tensions.

U.S. Treasury bond rates have remained low even with the end of quantitative easing in sight and the Federal Reserve preparing for the next step in unwinding monetary policy which is raising the Fed Fund’s rate. Although the timing of the rate increase remains uncertain, in theory, bond rates should be moving higher in anticipation of the change.

Bond yields have remained low, in part, because of geopolitical conflicts. Relations between Ukraine, Russia, and the West deteriorated further when an international commercial airliner carrying hundreds of passengers was shot down over Ukraine by a surface-to-air missile. Sanctions imposed by the European Union and United States have negatively affected the Russian economy. BBC.com reported about $75 billion in capital has fled Russia and the country’s economy so time will tell how this will shake out.

Sanctions also hurt economic growth in Europe where recovery has been muted. World stock markets were disappointed, late in the quarter, when the European Central Bank confirmed it was ready to pursue further stimulus but failed to offer any specifics. Over the quarter, interest rates in Europe drifted lower. The Wall Street Journal reported, “Record-low interest rates in Europe have flipped bond investing on its head. Some bond buyers, typically paid for lending out their money, have begun paying borrowers to look after their cash.”

The third quarter of 2014 was many things, but it certainly wasn’t boring.

Weekly Focus

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                                   Image courtesy of Oleg Aleksejczuk, used in accordance with the Creative Commons Deed CC0 license.

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