NEW YORK (TheStreet) -- Investors are seeking safety in short-duration bonds as the long-term outlook in the U.S. remains uncertain.
Fiscal policy has been largely shored up with a short-term resolution to the debt-ceiling debacle, and although the process was messy, the government looks to be intact through at least February.
The Federal Reserve extended monetary stimulus in September, citing slow growth. Now it appears certain that stimulus will remain in place till mid-2014 because of strains caused by the government shutdown.
Although monetary and fiscal policy look set through 2013, beyond that, it is a flip of the coin as investors realize that the debt-ceiling drama has been merely postponed, not resolved.The chart below is of iShares Barclays 1-3 Year Credit Bond (CSJ). The short-duration bond fund has been bid higher out of a consolidation pattern and looks to have made a solid double-bottom base. Interest rates and the dollar could change drastically over the next year due to continued policy uncertainty, and a way to hedge against such fluctuations is by putting funds in short-maturity fixed income.
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