Nick Goetze discusses fixed income market conditions and offers insight for bond investors.
As recently as the beginning of this year the market pundits were predicting up to six Federal Reserve rate cuts to the short-term Federal Funds Rate. Shockingly, the pundits’ expectations have not come to fruition. Predictions based on the sentiment of the day fill the twenty-four-hour news cycle on multiple outlets. Remember the good old days when the top stories of the day were broadcast on three or four networks just in the morning and evening? Now, we find ways to make mountains out of molehills to fill every waking moment in hopes of keeping you from changing the channel, web page, or radio station. The intensity and volume of information are overwhelming and absolutely unnecessary to achieve individual investment goals in fixed income.
In its simplest form, when you buy an individual investment grade bond, it pays you interest, usually fixed, on a predetermined schedule and yield level until it is called or matures barring the highly unlikely event of default. After determining an individual’s objectives, a portfolio of bonds can be assembled to create a custom strategy that, when held until redeemed, will perform regardless of what interest rates do in an unknown future. In other words, a long-term approach that does not change nor is affected by the noise of today.
Top of mind now is will there be a recession after two years of one of the deepest and longest inverted Treasury yield curves? Likely, should history repeat itself. Does economic weakness, negative geopolitical events or pandemics ever impact our economy? Last time I checked it does. Do yield moves and credit spreads affect bond prices? Yes, but in the event of any of these things, what does not change is the cash flow and known maturity of a custom fixed income portfolio.
The news, and even our neighbors, have lots of financial information to share and give us throughout every hour of every day. It is all designed to keep from losing your attention. With a long term, well-thought-out strategy, the outcome is in hand barring an unlikely default. The daily excitement is irrelevant. It’s nice that the safe stuff is predictable and boring. No wonder individual bond portfolios don’t make the news.
The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.
Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.
To learn more about the risks and rewards of investing in fixed income, access the Financial Industry Regulatory Authority’s website at finra.org/investors/learn-to-invest/types-investments/bonds and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) at emma.msrb.org.
