Federated Adjustable Rate Securities Fund (IS) FEUGX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Short-Term Bond
As of 06-30-2018

Market Overview

As economic expansion continued at a pace deemed inconsistent with easy monetary policy, the Federal Reserve (Fed) acted once again to remove accommodation via a higher federal funds rate and reduced portfolio reinvestment. Interest rates increased across the maturity spectrum and higher rates reduced refinance activity for mortgage-backed securities (MBS).

Citing solid growth and a rate of inflation near the Federal Open Market Committee’s 2% target, the Fed raised the federal funds rate 25 basis points to a range of 1.75-2%. The unemployment rate declined to 3.8%, the lowest rate in nearly two decades as the economy created 600,000 jobs. Trends in unemployment claims, jobs created and openings relative to available workers all pointed toward a strong labor market. Accordingly, the Fed expects further rate hikes in coming quarters as an accommodative monetary policy is inconsistent with current rates of unemployment, labor market conditions and inflation.

The Fed’s balance sheet normalization program continued on schedule, resulting in smaller holdings of government debt and mortgage-securities. Reinvestments are limited to the extent that principal payments exceed predetermined caps. For the reporting period, the caps increased $4 and $6 billion to $12 and $18 billion for MBS and U.S. Treasury securities, respectively. As a result, security holdings slowly decreased. Interest rates increased across the Treasury yield curve in response to the Fed’s actions. Thirty-year mortgage rates rose in concert, reducing refinancing activity.

Two- and 10-year Treasury yields increased 26 and 12 basis points to yield 2.53% and 2.86%, respectively.

Fund Performance

For the three months ended June 30, 2018, Federated Adjustable Rate Securities Fund (Institutional Shares) returned 0.39% versus 0.40% for the ICE BofA Merrill Lynch 1-Year US Treasury Note Index. The Institutional Shares’ net asset value (NAV) on June 30, 2018, was $9.64.

Performance data quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than what is stated. Other share classes may have experienced different returns than the share class presented. To view performance current to the most recent month-end and for after tax returns, click on the Performance tab.

Click the Performance tab for standard fund performance.

Positioning and Strategy

Over 85% of fund assets are invested in ARMs and monthly adjustable securities. Responsiveness to changes in short-term interest rates has resulted in increased portfolio income and yield with low price volatility.