Read the weekly bond market commentary from Doug Drabik.
June 4, 2018
Two of the widely used spread products in fixed income are municipal and corporate bonds. The markets have seen much more volatility lately and slowly we have seen interest rates inch up from historic low rates experienced over the last 5-10 years. This change is allowing investors more yield for assets dedicated to their core portfolio. The yield curve has moved in anything but a parallel pattern. Most investors would want to capture the highest benefit with the least amount of risk. Of course, this is the typical tradeoff and locating that most beneficial spot on the curve can vary from investor to investor based on individual risk tolerances and individual goals. The following may provide a good spot check on where to be located on each of the designated curves from a yield perspective.
As depicted, 85% of the value of the entire curve can be captured at 11 years in municipal bonds (AAA) and between 6 and 7 years in corporate bonds (A). Depending on risk profiles and individual goals, other investment grade credits may capture this value at even shorter points on the curve. For tailored information on a specific portfolio, please contact your personal Raymond James advisor.
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.