Weekly Bond Market Commentary

Take What the Market Gives You

By Drew O’Neil
January 22, 2018

Wouldn’t you love to be able to buy Apple stock at $25? What about a brand new Corvette for $5,000? Or a gallon of gas for 75󠅤 cents? Most of us would but unfortunately in the capitalistic world in which we live, the market dictates the prices that we pay, not the other way around. Whether we are talking about equities, cars, commodities, or bonds, just because you used to be able to buy something for a certain price, doesn’t mean that you can anymore. Market dynamics are constantly changing and along with that, the prices we pay.

We get requests all the time for portfolios that provide yields that simply do not exist in today’s market (and there is no guarantee that they ever will again). “I need a portfolio of AA-rated corporates laddered 1 to 10 years with a yield of 6%” is the same as going down to your local Chevrolet dealership and asking for a new Corvette Z06 but you only want to pay $10,000. In the current market , it just isn’t possible.

So where do we go from here if we can’t get exactly what we want? We take what the market gives us. For most investors, the fixed income portion of their portfolio is intended to be the ballast of their portfolio; by design it is intended to have lower potential downside which translates to lower potential upside. Higher risk = higher reward, lower risk = lower reward, remember?

So what exactly is the market giving us right now? The chart below highlights a few illustrative portfolios to give you an idea of where the market is right now. Depending on individual liquidity needs, tax situations, risk tolerances, income needs, etc., every investor requires something a little different, but these examples should give you an idea of what is available for your fixed income dollars.

No two portfolios look identical because no two investors are identical. The beauty of individual bonds is that they give you the ability to custom build a portfolio that takes into account every nuance of your individual needs.

To learn more about the risks and rewards of investing in fixed income, please access the Securities Industry and Financial Markets Association’s “Learn More” section of investinginbonds.com, FINRA’s “Smart Bond Investing” section of finra.org, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) “Education Center” section of emma.msrb.org.

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.