Fort Dearborn Income Securities, Inc. (the "Fund") (NYSE: FDI) is a closed-end bond fund managed by UBS Global Asset Management (Americas) Inc. The Fund invests principally in investment grade, long-term fixed income debt securities. The primary objective of the Fund is to provide its shareholders with:
Fund Commentary for the fourth quarter 2012 from UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment advisor
- A stable stream of current income consistent with external interest rate conditions; and
- A total return over time that is above what they could receive by investing individually in the investment grade and long-term maturity sectors of the bond market.
Risk aversion was elevated at times during the last three months of 2012. A number of issues triggered periodic flights to quality, including signs of decelerating global growth and the impending US "fiscal cliff." However, these setbacks proved to be only temporary in nature, and robust risk appetite returned given investors' search for yield in the low interest rate environment.
The US Federal Reserve Board (the “Fed”) continued to pursue its highly accommodative monetary policy during the fourth quarter. At its last meeting of the year, the Fed announced that it would continue making open-ended purchases of $40 billion per month of agency mortgage-backed securities, as well as purchasing $45 billion a month of longer-term Treasuries. The Fed also said that it would keep the federal funds rate on hold, "…as long as the unemployment rate remains above 6.5%," provided inflation was well-contained.
All told, the overall US bond market, as measured by the Barclays US Aggregate Index, returned 0.22% during the three months ended December 31, 2012. Most US spread sectors (non-US Treasury fixed income securities) generated positive results during this period, and generally outperformed equal duration Treasuries. As was the case for much of the year, risk taking was rewarded, as lower rated bonds generated superior results. Among the best performers were emerging markets debt and high yield corporate bonds. Investment grade corporate bonds, commercial mortgage-backed securities (CMBS) and Treasury Inflation-Protected Securities (TIPS) also posted strong returns.