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Bond Market Commentary

  • 06.10.19
  • Markets & Investing
  • Commentary

Finding Value

By Drew O’Neil

What is the “best” thing to invest in right now? Theoretically, this is the question that anyone trying to put investment dollars to work is trying to answer. While it seems like it should be an easy question to answer, when looking at the fixed income space, the answer is almost always: “It depends”. There is no “best” bond available. The perfect bond for me is probably not the perfect bond for you. Countless factors, all of which vary from person to person, work together to determine an appropriate fixed income allocation. Tax situation, time horizon, risk tolerance, income needs, state of residence, liquidity preferences, personal biases, account type, investment goals, other investments… the list goes on and on. After working through the potential factors, an appropriate strategy can then be developed.

“So is there any value out there with the yield curve so flat?” Yes, especially considering that most investors are not building a portfolio of Treasuries, they are investing in a spread product, such as corporate or municipal bonds. Yes, the Treasury curve is currently inverted (10 year to 3 month spread), but both the corporate and municipal yield curves still provide investors positive slope in the intermediate part of the curve. The graph to the right highlights stark difference between these three curves. The Treasury curve is clearly very flat and partially inverted, while the corporate curve steepens past the first few years and the municipal curve (TEY) begins steepening around the 7 year point. This graph also highlights that for investors in the top tax-bracket, corporate bonds (blue line) can offer a yield advantage out to around 8 or 9 years compared to municipal bonds.


A different way to highlight the slopes/steepness of the curves, is in the second chart, which is essentially a heat map. The ‘Add’l Yld’ (Additional Yield) column shows how much yield is picked up by moving out an additional year on the respective curves. The green cells highlight the steepest part of the curve and the red/yellow represents flatter parts of the curve. By combining the graph above and the heat map chart, investors can zero in on their appropriate product and curve positions for their specific situation.

So where is the best place for you to invest your fixed income dollars right now? It depends, but your Raymond James financial advisor can work with our High Net Worth and Strategy teams to help identify value and opportunities that suite your personal situation.



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.