Oil, Hurricanes, and the Fed Fixed Income Funds Fold Before Forces of Nature

• While the equity markets roared ahead to finish a fine quarter, the fixed income market finished a mostly-down week in the face of comments by Fed members and economic announcements foretelling inflation in the wake of Katrina.

• The taxable and tax-exempt fixed income sectors were down 0.26% and 0.35%, respectively.

• Only three Lipper fund classifications-Emerging Markets Debt Funds, High Current Yield Funds, and Loan Participation Funds-broke positive ground at 0.45%, 0.16%, and 0.10%, respectively.

• Among taxable fund classifications, the World Income macro-classification fared the worst at minus 0.57%; all classifications other than Emerging Markets Debt Funds suffered at the hands of the strengthening dollar.

• Although most classifications were in negative territory, riskier-grade and shorter-term classifications fared better than the better-rated and longer-term classifications for both Treasury and corporate-focused securities in the face of rising yields for the benchmark ten-year Treasury.

• Yield curves continued to flatten; the difference between the ten-year bond and the two-year note was 17 basis points, while the difference between the long bond and the ten-year bond was 24 basis points.

• Mortgage-backed fund classifications mirrored Treasuries as well as suffered new accounting problems at Fannie Mae.