Fixed Income Market Commentary

Fixed Income

Fixed Income Market Commentary

Read the fixed income commentary from Executive Vice President Kevin Giddis.

November 16, 2018

The Treasury market is trading higher again this morning as safe haven buyers continue to add to their positions. Some of the buying is credit-related, some of it is Fed-related, a piece of it is trade-related, and some of it is Brexit-related. As individual issues, this isn’t worrisome, but with a number of things in play, investors have chosen, at least for now, to find a safe place for their cash. Especially as the equity market seems to be vacillating between up days and down days. Many investors took away from Jay Powell’s speech the other day that the Fed may not tighten in December, but wait until January. I am not sure I see it that way, maybe even seeing the opposite scenario of the FOMC raising rates in December, then take a break in January. Volatility, after pushing higher for most of October before drifting lower for the first two weeks of November, has seen three straight days of increases, indicating that traders are a bit torn on the direction of interest rates. Later this morning we will get Industrial Production (exp. up 0.3%) and Capacity Utilization (exp. 78.2%) for the month of October, but neither is likely to push the bond market one way or the other. What we do need to watch are the decline in global economies. This is becoming more pronounced, which could make its way into the U.S. next year. Things like the thought of a “No-Brexit,” or the realization that central banks away from the U.S. might not be tightening, in fact they may even have to ease if those economies flameout. What do those possibilities do to the dollar? Next year, when the new look House and Senate are sworn in, how will the market react? It likely favors the bond market because nothing can stop a speeding economic train quicker than gridlock! Starting to get the picture? Most of the items then I mention above could be more favorable for bond prices than stock prices, especially those with higher credit ratings. I still see GE and Pacific Gas & Electric as companies with singular issues, but make no mistake about it, credit spreads have and will likely continue to widen. Whether it’s signaling the beginning of the end the cycle, might be a bit premature. That leaves us pretty much watching what the Fed says, then what it does. In the meantime, look for a better correlation between stocks and bonds, suggesting that the money will likely continue to flow between the two, depending on how the key issues play out. 

The information contained herein is based on sources which we believe reliable but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities herein mentioned. This firm and/or its affiliates and/or individual shareholders and/or members of their families may have a position in the securities mentioned and may make purchases and/or sales of these securities from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Raymond James may also perform or seek to perform investment banking for entities referred to herein.

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