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Bond Market Commentary

As the World Changes, Fixed Income Remains Constant

By Doug Drabik
July 22, 2019

There are many things changing in today’s world, bond characteristics are not among them:

  • The U.S. population is aging. In 2010, 55+ year olds represented 24.3% (74 million) of the population. By 2016 there were 88.6 million persons 55+ or 27.8% of the population. (A 7 year Treasury note purchased in 2010 at 3.384% was still earning the investor 3.384% in 2016)
  • By 2035, the Census Bureau predicts that there will be 78 million people 65 years and older compared to 76.7 million under 18. (By comparison, the 2016 census had 81.8 million 0-19 years and 47.5 million 65+.) (A 20 year municipal bond purchased by a high tax bracket investor at a 3.74% tax-equivalent yield purchased today will still be earning 3.74% in 2035, regardless of where interest rates go.)
  • Based on 2016 Census Bureau’s numbers, 55+ represent 27.8% of the population yet hold 61.2% of the net worth. (Whatever new products arise or however interest rate fluctuate, investors’ individual bond holdings will provide the income streams and cash flows from purchase to maturity.)
  • As consumer spending represents a large portion of the U.S. GDP, changing demographics could play a major role in future growth. For example, the older population likely owns their home and is not necessarily furnishing one. However healthcare, pharmacy and assisted living products and services may be in demand. (Shifts in demand for various products may change the pricing of those products but will have no effect on a bond’s performance if already held. A corporate bond purchased and held at 3.00% when little demand existed will still be yielding the investor 3.00% should the market’s demand shift on new issue bonds.)
  • The oldest millennials are reaching 40 years of age and slowly coming into the generation bucket most likely to spend. This generation has been late bloomers in terms of purchasing homes and being more sedentary in jobs and dwellings but as they start raising families, it is plausible this shifts purchasing patterns. (Spending patterns and types of products and services will shift, but individual bond earnings will remain constant from their purchase date.)
  • Monetary policy is dominating fiscal policy around the globe. Nations are finding it difficult to support national budgets and social programs through fiscal actions such as taxes; however, through monetary policy and their central banks, countries are creating money through quantitative easing or mass open market purchasing programs. (During a fixed income holding period, policies change, interest rates fluctuate, tax laws evolve, supply and demand shifts pricing, etc. Despite the dynamics, already purchased fixed income can expect to remain constant.)
  • At the start of 2010, the four major central banks (European Central Bank, Bank of Japan, Peoples Bank of China, Federal Reserve) had combined assets of $9.5 trillion. At the end of June, 2019, that number was $19.7 trillion. (A 10 year Treasury yielding 3.85% purchased in 2010 was still earning the investor 3.85% yield in June, 2019)
  • The world will continue to transform. The stock market will have positive and negative days. Interest rates will move bond prices up and down. Governments will seek various means to support and grow their economies. Bonds held in the portfolio to maturity, barring default, will perform exactly as they were intended to perform from the day of purchase through their maturity.

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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