December 14, 2020
Doug Drabik discusses fixed income market conditions and offers insight for bond investors.
Twas two weeks before Christmas, when all through the house,
COVID was stirring, a vaccine needed to dowse.
The options were sprung from pharmaceuticals with dare,
In hopes that its effectiveness would meet world’s prayer.
Quarantines, closures, patients in beds,
While visions of normalcy, danced in their heads.
And Trump in his ‘Make America Great’ cap,
The nation now settled with this incoming Biden chap.
When out in the markets stock & bond prices fatter,
Interest rates low, the yield curve flatter.
Away tucked in savings, a mountain of cash,
Uncertain investors contemplating use of their stash.
The pandemic recession still in tow,
Cast a shadow on profits, bigger debts we owe.
When, what to my wondering eyes should appear,
Total returns providing an inordinate year.
With names coming so lively and quick,
I knew in a moment media deception piled it on thick.
Some the target of shame and blame,
Others deserving of historic fame:
“Now Wuhan! Now WHO! Now Harris and Fauci!
On, Ginsburg! On, Bryant! On, Van Halen part of history!
To the biggest day crash! To the record high call!
Now erode away! Erode away! As interest rates fall!”
As spreads on a pandemic begin to fly,
When they meet with stimulus widening goes bye-bye.
So too credit weakening does ensue,
Government backing and lending facilities come to view.
And then in a twinkling, I heard the impeachment goof,
The charges get dropped when there’s failure of proof.
As I bang on my head with split party hostility abound,
Let’s pray that humility, respect and collaboration are found.
Fixed Income Solutions is afoot,
Proposals, reviews, education, strategies the output.
A bundle of services, we have your back,
And look to maintain, investor best interest top of the stack.
Protect your principal, income the cherry!
Record low rates and uncertainty are scary!
Valuations go rogue yet conservative the money flow,
Appropriate asset allocation investors must know.
Zero Fed Funds does the FOMC bequeath,
A policy prediction, a strategy underneath.
High quality short bonds, market yields are smelly
Swaps will improve going into the corporate curve belly.
Cash flow can be bought to help oneself,
You won’t lose but use the principal itself.
Take heed as investors with yields are misled,
Yield-to-worst is not equal to current yield it’s said.
Principal protection, individual bond’s greatest perk,
Back to the basics, put portfolio allocation to work.
Shorten duration, upgrade credit we propose,
Know how to protect and use your cash flows.
As a miserable year closes, we welcome 2020’s dismissal,
Hope, good health and fortune our epistle.
Fixed Income Solutions will fight the fight,
But most importantly remember, “Merry Christmas to all, and to all a good night!”
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.
Stocks are appropriate for investors who have a more aggressive investment objective, since they fluctuate in value and involve risks including the possible loss of capital. Dividends will fluctuate and are not guaranteed. Prior to making an investment decision, please consult with your financial advisor about your individual situation.