While keeping its benchmark rate unchanged during the quarter, the Federal Reserve (Fed) officially declared its plans to begin reducing its balance sheet in October. In addition, the Fed indicated that it expects to raise the benchmark federal funds rate one more time this year, most likely in December. Treasury yields moved slightly higher, with a continued flattening of the yield curve, as the market had largely priced in the Fed’s intentions. Tax-exempt yields moved in an uneven fashion, with front-end and longer-intermediate maturities outperforming.
For the quarter, the Fund generated a positive return of 0.75%. Year-to-date total return now stands at 4.09%. During the quarter, we kept a duration weighting shorter than the benchmark, as we look for interest rates to increase over the next six months. We focused on reducing exposure to over-priced parts of the California yield curve, particularly in maturities of 10 years and below. We continue to favor high grade securities with defensive coupon and call structures. The Fund’s higher credit quality in comparison to its benchmark and peers remains firmly in place. At quarter end, the Fund held less than 6% of portfolio assets in A-rated securities and had less than 1% exposure to BBB-rated credits.
We will closely watch the Federal Reserve for any modification in its expected policies. In addition, we will track activity in Washington to assess the likelihood of tax reform. As always, we will look to purchase attractively priced new deals and sell into robust in-state secondary demand.
Holdings are subject to change and current and future portfolio holdings are subject to risk.
Not FDIC insured | May lose value | No bank guarantee
Please carefully read the prospectus and summary prospectus and consider the investment objectives, risks, charges and expenses of Northern Funds before investing. Call 800-595-9111 to obtain a prospectus and summary prospectus, which contains this and other information about the funds.
©2017 Northern Funds | Northern Funds are distributed by Northern Funds Distributors, LLC, not affiliated with Northern Trust.