Doug Drabik discusses fixed income market conditions and offers insight for bond investors.
It can be easy to overthink the markets and it is human nature to try to out-guess, out-maneuver, or out-smart the average, but perhaps we can step back and simplify what seems to be occurring:
These two points pretty much sum up bond market behavior for the year. The complexities of data interpretation, contrasting reads, and peripheral circumstances have created the push-and-pull effect generating volatility in the bond market. Investors, financial experts, and economists alike have been very fickle based on the latest data release. This is punctuated by the Federal Open Market Committes’s stance to remain “data dependent.”
Here are some influential variables that may keep the volatility going (resources include Bloomberg LP, Federal Reserve, Bureau of Economic Analysis, and ICI data):
This is not meant to be an all-inclusive list of bond market movers; however, it provides a basis for identifying the vast number of variables contributing to the bond market’s volatility. A significant takeaway is best shown visually with the following graph. The volatility has led to a high interest rate environment which regardless of personal viewpoint on which way the market will go, indicates where the market has gone. Interest rates remain elevated and at levels not seen in 17 years. Take advantage of this while the window remains open.
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.
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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.