September brought with it more volatility in the markets, with concerns over Europe’s sovereign debt issues taking center stage. Questions remain as to how and to what extent any country or bank failure in Europe would affect the U.S. Due to the global markets’ increasing interconnectivity, it is likely that the U.S. would not be immune from any failure overseas. This is one reason for poor performance in the equity markets for the year and why investors have flocked to fixed income, putting pressure on yields (to move lower).
On our shores, the Federal Reserve announced that it would administer another program to keep long-term rates down, in an attempt to stimulate borrowing and, subsequently, the economy. Rates are currently at historically low levels (2.013% for the 10-Yr. Treasury as of 9/28/2011), so to what extent they can move significantly lower, or even help further stimulate the economy, is another question. The Fed’s program is expected to run through June 2012 and certainly one of the Fed’s hopes is to maintain rates at these low levels for a while longer. In fact, there have been no immediate concerns over inflation, which would require moving away from such a low rate policy. Unfortunately, this environment is less than favorable for investors and savers as they look for yield in safer fixed income securities.