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Bond Market Commentary

What Do the Numbers Mean to You?

By Drew O’Neil
September 24, 2018

As the end of the 3rd quarter approaches, we take a look at the ground we have covered so far in 2018. Below is a chart of both the year-to-date yield change and total returns for a few indexes.

Your takeaway from these numbers is likely very different depending on what product type your fixed income dollars are allocated to. Investors in individual bonds are probably cheering the rising rates, while investors in other “fixed income” labelled products are likely not thrilled about 2018 so far.

If you own your fixed income via some sort of packaged product with no defined maturity date, the column on the right is likely of utmost importance to you. If your fixed income product has no maturity date, your redemption value is subject to the date that you chose to sell and the price that the product is priced at on that particular day, meaning that total return, which includes price changes, are your main concern. As you can see, it has not been a great year (not horrible, but not great) total return wise, as many indexes are in negative territory in 2018. The main reason for these negative total return numbers is due to the rise in interest rates that we have seen so far, which brings us to the yield change column in the chart above.

If you are an investor that owns individual bonds, the increase in yields shown in the chart above is what likely drew your attention (and brought you some joy). The primary driver behind the negative total returns for the indexes is a drop in prices for the underlying securities. For a buy-and-hold-until-maturity investor of individual bonds, this price movement does not matter or effect their returns, as they know (barring default or early redemption) exactly when and at what price their bonds will be redeemed, so the negative total return numbers are basically background noise. What owners of individual bonds are excited about is the increase in yields, as this means that they can reinvest their coupon payments and returned principal back into the market at higher yields.

This serves as a good reminder of the differences between putting your “fixed income dollars” into a product with no maturity versus investing in individual bonds. Individual bonds serve as the ballast of your portfolio providing defined cash flow and return of principal, while packaged products generally serve more as a total return play, where nothing is fixed and you are at the mercy of the market. Which camp are you in?

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, FINRA’s “Smart Bond Investing” section of, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) “Education Center” section of

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.

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