Now that the shutdown has come to an end, we would assume these agencies will be up and running again soon. So what can investors expect?
Basically, we’ll likely see a lot of data come into the market in a very short period of time. For example, it looks like we will get the September payroll and unemployment numbers (the most-watched pieces of economic data) next week, quickly followed by the October numbers in the first week of November. Similarly, we can expect to see closely-timed data for CPI, PPI, construction spending, retail sales, and a host of other data points.
The upshot for investors? Because of this data deluge, we could see heightened levels of market volatility as investors respond to each new piece of information. But, as Russ Koesterich pointed out in his last post, the silver lining of this debacle is that the Fed is likely to push off tapering for at least a little longer – delaying the inevitable backup in interest rates.
For fixed income investors, this means a couple of things. In the short term, a continued lower rate environment would be supportive of high yield bonds. Investors might also consider agency mortgage-backed securities, which should benefit from the Fed’s continued purchase of mortgage bonds . Longer term, rates will eventually rise – it’s just a question of when. This is why we’ve seen a lot of clients shifting bond portfolios to shorter duration securities, such as short duration credit, this past year.
Matt Tucker, CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to The Blog. You can find more of his posts here.