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Bond Market Commentary

So Many Variables

Doug Drabik
January 19, 2021

On the eve of a new White House and congressional turnover, there are numerous unknowns that may shape our economy and fixed income sandbox. Predictions are always difficult and economists prove year after year the complexity of demonstrating accuracy.  No playbook is perfect so let’s take a look at some teetering issues which may influence 2021 and exhibit why it is a thankless and impossible task to unfold the future before its time:

  • Inflation (via goods and services) kept in check vs. additional disposable income and stimulus money creating robust spending and increasing inflation.
  • Coronavirus vaccines fruitfully distributed vs. slowed dispersal and continued rising percent of virus afflicted persons.
  • Currency manipulation to improve trade benefits vs. stronger currency dictated by market conditions.
  • Continued asset inflation propping stock and bond markets vs. corrective pullbacks and rising interest rates.
  • Face-to-face vs. ZOOM.
  • Corporate bounce back vs. strain from pandemic.
  • A nation that continues to lay blame on “the other guy” vs. a rally to reunite as one nation.
  • Narrowing of global interest rate disparity vs. continued difference and counter fundamentally-intuitive interest rates.
  • City vs. suburb.
  • More stimulus vs. tapered spending.
  • Congressional support vs. tempered moderate democratic support (senators up for re-election in 2 years).
  • Debt continuing to grow vs. “how are we going to pay for this?”
  • Raised minimum wage helping lower class increase disposable income vs. increasing number of unemployed as employers can only afford fewer workers.
  • Normalized fixed income spreads vs. widening spreads nurturing yields.
  • Continue to drive vs. getting back on an airplane.
  • Ease of regulation vs. restrictive pullbacks.
  • Rodgers vs. Brady.
  • Taxes remain intact vs. rising marginal rates.
  • Work from home vs. back to the office.
  • Oil prices remain subdued vs. commodity increases.
  • The budget stays unbalanced vs. a more controlled attempt to align.
  • Free speech vs. monitored selection.
  • Reaching for yield vs. acceptance and long-term planning.
  • Current yield (mutual fund quoted yield) vs. yield-to-worst.
  • Consumer confidence builds vs. consumer deflation.

How some or all of these play out involves countless combinations. The only inevitabilities are uncertainty and how fixed income when held to maturity will perform. 

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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