'Twas The Week Before Christmas 2017

by Doug Drabik, Fixed Income, Raymond James

Twas the week before Christmas, when all through the market
Congress was sparring, sweeping away Trump’s red carpet.
Economic numbers looked up by the chimney with care,
In hopes of stimulating the economy with more than a prayer.

The investors were nestled all snug with their money,
While visions of higher yields danced and portfolios looked sunny.
And Yellin and her governors, and I in my analysis gift wrap,
Had just settled our brains for the Christmas break’s nap.

When out around the globe there arose a clatter,
We sprang from our chairs as the curve got flatter.
Away to the U.S. money flew in like a flash,
Keeping the headwinds on rates and mattresses stuffed with cash.

Global central banks accommodative with rates,
Tore open the height of equities and asset-class weights.
When, what to my wondering eyes should appear,
The possibility of tax law changes next year.

When an out-spoken FOMC, Fed Funds their trick
Investors showing no confidence for 2018 rate picks.
More rapid than eagles their policies came,
Powell whistled, and shouted, and announced; the new Fed chair’s name.

Now, Xiaochuan! Now, Visco! Now, Kuroda and Draghi!
On, Carstens! On, Yellin! On, Nabiullina and Carney!
To the listless bond market! To the energetic stock market bull,
Now dash away! Dash cash away! Dash away with yields less than full.

As dry leaves that before the wild hurricane fly,
When short versus long term rate spreads went bye.
So continued the global disparity, an interest rate coup,
With a sleigh full of US bonds the best in investor’s view.

And then, in a twinkling, politics from the hill,
The prancing and pawing of each quarreled bill.
As I drew in my head, and was turning around,
Down the chimney new Fed appointees were coming with a bound.

Politicians stay dressed with promises, from their head to their foot,
And hope that forward policies may make some regulations go caput.
A bundle of changes they flung on their back,
And they bring higher rates, even with inflation slack.

Investor eyes how they twinkled! Their message so merry!
The New Year promises like roses, to some it is scary.
Changes a many are stacked like bricks,
The Fed appointees with new Chair, part of the mix.

The future of strategies being unscrambled underneath
And the changes encircle like a Christmas wreath.
Keeping it simple with the right asset class weight,
Know what you own, a certain mandate.

The headwinds still swirl, so caution ahead with muddy clarity,
Central bank direction, the dollar and interest rate disparity.
Stimulus takes time to affect GDP,
Rates may inch up but slow like the growth of a Christmas tree.

Don’t sway from the portfolio plan, keep asset-class smarts,
Cash flow, income and stated maturities for healthy investor hearts.
As we end the year with optimism at a peak,
“Merry Christmas to all, and to all a good week!”

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.