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2019 Bond Market Outlook

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KATHY JONES: We ended 2018 with a cautious outlook on the bond market. Our biggest concern was that the Federal Reserve’s series of interest rate hikes would reduce demand for bonds, especially bonds in the riskier segments of the market like high-yield bonds; but recently the Federal Reserve has indicated that they’re unlikely to raise interest rates again in the near-term. They may hold off for a while. Does that mean we should throw caution to the wind?

I’m Kathy Jones, and this is Bond Market Today.

Although the markets have responded positively to the Fed’s message, we still see some risk in the bond market, particularly the corporate bond market due to high levels of debt on balance sheets, slowing economic growth, and a slowdown in earnings growth. Consequently, we continue to suggest moving up in credit quality from the lower rated bonds.

On the positive side, we think it’s less likely that the yield curve will invert, that is, that short-term rates will move above long-term rates if the Fed slows down its pace of interest rate hikes; and that’s good news for the economy because an inverted yield curve is often seen as a leading indicator of recession.

One thing that hasn’t changed is our outlook for bond yields. We continue to believe that the peak in 10-year treasury yields for this cycle was hit last fall at about 3.25%, and that for the first half of 2019, we expect yields to be in a range of about 2.5 – 3%.

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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.

Supporting documentation for any claims or statistical information is available upon request.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

High-yield bonds and lower rated securities are subject to greater credit risk, default risk, and liquidity risk.

Investing involves risk including loss of principal.

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