Federated Adjustable Rate Securities Fund (IS) FEUGX

Share Classes Product Type Asset Class Category
Mutual Fund Fixed Income Short-Term Bond
As of 09-30-2018

Market Overview

Economic strength across a variety of measures supported additional Federal Reserve (Fed) tightening of monetary policy. Interest rates increased across the maturity spectrum and higher rates reduced refinance activity for mortgage-backed securities (MBS).

Economic activity, job creation, household spending and business investment were all cited as sufficiently strong to support a 25-basis-point rate hike to the federal funds rate target range of 2-2.25%. The unemployment rate declined to 3.7%, the lowest level since 1969. The Fed expects further rate hikes in coming quarters assuming inflation remains near the 2% objective and is accompanied by strong economic activity and labor markets.

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 $16 and $22 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 29 and 20 basis points to yield 2.82% and 3.06%, respectively.

Fund Performance

For the three months ended Sept. 30, 2018, Federated Adjustable Rate Securities Fund (Institutional Shares) returned 0.33% versus 0.41% for the ICE BofAML 1-Year U.S. Treasury Note Index. The Institutional Shares’ net asset value (NAV) on Sept. 30, 2018, was $9.63.

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 80% of fund assets are invested in adjustable-rate mortgages (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.