Read the weekly bond market commentary from Drew O’Neil

September 10, 2018

A common topic of conversation lately has been the shape of the yield curve, and the question of will it or won’t it invert. The good news (for me at least) is that most of these conversations that I have are with investors in individual bonds with a buy-and-hold-until-maturity strategy, so the conversation is very simple. Here is a summary of the typical discussion:

What is going to happen to my investments if the yield curve inverts? If you own individual bonds, the answer is simple: they are going to do the exact same thing they would have had the yield curve not inverted. Owning individual bonds provides known cash flow over the life of the bond and a known date when you will get your principal returned to you, regardless of what happened between the day the bond was purchased and the day the bond matured (of course, barring a default). Trying to predict what the yield curve is going to look like a month from now or a year from now is not only a nearly impossible task but largely irrelevant as it concerns holding bonds. Most investors are purchasing high-quality individual bonds as part of a long-term financial plan, not as a short-term total return play where an investor has to correctly time the market in order to “win”. For those of us who are visual learners, the chart below details what you could expect in a yield curve inversion scenario as well as what to expect if the yield curve does not invert, if you were to purchase individual bonds today.


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.

By | 2018-09-10T12:49:39+00:00 September 10th, 2018|Bond Market, Latest Articles|