Bond Market

What's moving the Bond Market?

Doug Drabik discusses fixed income market conditions and offers insight for bond investors.

It can be easy to overthink the markets and it is human nature to try to out-guess, out-maneuver, or out-smart the average, but perhaps we can step back and simplify what seems to be occurring:

  1. Investors are anticipating when the Fed will change monetary policy (lower interest rates). In general, the economy has remained resilient, by and large, corporate earnings have beaten estimates, and consumer spending has been unrelenting. Any data release that diverts from economic strength, earnings, or spending seems to rouse Treasury prices and thus lower rates. On the other hand, continued strength in these numbers drops Treasury prices and pushes rates higher.
  2. The Fed is fixated on inflation. If inflation remains sticky or hints at reigniting, it seems unlikely they begin to cut rates. Conversely, if it appears inflation is dropping as desired, the likelihood of cuts increases accordingly.

These two points pretty much sum up bond market behavior for the year. The complexities of data interpretation, contrasting reads, and peripheral circumstances have created the push-and-pull effect generating volatility in the bond market. Investors, financial experts, and economists alike have been very fickle based on the latest data release. This is punctuated by the Federal Open Market Committes’s stance to remain “data dependent.”

Here are some influential variables that may keep the volatility going (resources include Bloomberg LP, Federal Reserve, Bureau of Economic Analysis, and ICI data):

  • The U.S. personal savings rate as a percent of disposable income peaked at 32% at the height of COVID. This should be of no surprise as businesses were shut down and travel blocked. As the pandemic dissipated, consumers began to spend. In just two years from the May 2020 peak, the savings ratio went from 32% to 2.7%. Today’s 3.2% savings rate is significantly below the 30-year average of 5.8%.
  • Credit card debt has ballooned at an unprecedented rate. It is now 60% higher than the 30-year average.
  • Average Hourly Earnings – have not kept pace with inflation.
  • Corporate earnings – will they continue to beat or wane? Will this result in a slowdown in the economy or something more impactful?
  • Employment – will it remain robust or drop?
  • Commodity Prices – not exclusively but in particular oil. This could be a huge inflation influencer.
  • Consumer spending – it can be argued that as long as people are employed, they will likely spend money. In addition, strength in the housing and stock markets has added to consumer wealth. Regardless of liquidity in these holdings, it has certainly made individuals feel wealthier.
  • There is over $6 trillion sitting in money market funds. This is a big number and its shift in use may affect the market. Its influence can vary depending on whether it becomes part of consumer spending or is locked into investments.

This is not meant to be an all-inclusive list of bond market movers; however, it provides a basis for identifying the vast number of variables contributing to the bond market’s volatility. A significant takeaway is best shown visually with the following graph. The volatility has led to a high interest rate environment which regardless of personal viewpoint on which way the market will go, indicates where the market has gone. Interest rates remain elevated and at levels not seen in 17 years. Take advantage of this while the window remains open.

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.

Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.

To learn more about the risks and rewards of investing in fixed income, access the Financial Industry Regulatory Authority’s website at and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) at