Duration: 4:31

Transcript:

So the big question right now is that if you’re looking at your bond portfolio and let’s just say that you have high grade securities. Let’s just use a rated or better as an example. And you’re looking at your portfolio and you’re going, okay. I don’t really understand why my bonds are down.

Because you’ve seen equities get hammered over the last several weeks, and one would think that it would be a flight quality. In other words, people moving out of equities and going into bonds, high grade securities, whether it’s corporates or munis or or a combination of both.

And so the reality is is that when we’re in school and we learn about bonds versus stocks and the typical textbook is is that bonds are inversed to, say, stocks going down, so it’s a nice haven to go into, etcetera.

Normally, it works that way. However, when we have a market dislocation or a lot of uncertainty as we’ve mentioned before, that automatically that kind of is thrown out the window, meaning that not necessarily the bond prices are gonna continue to go down, but yields overall keep in mind, yields are inversed to pricing. So as yields go up, prices go down. Yields overall have moved up over the last, say, two to three weeks. The ten year treasury is a great example. Currently, it’s trading at around a four thirty to a four thirty five at the time of this recording. It got all the way down to a three point eight to a three point eight five percent.

And what does that really mean? That really means that that’s what’s called a benchmark securities that really prices a lot of other securities, primarily in the corporate world, but the municipal world does price off of the treasuries as well. So as the yield went up on the treasuries, call it a three eighty to a four thirty as an example, then pricing went down. Why did that happen?

Why is this going on? The reason being is because we have have a tremendous amount of uncertainty about what’s going on in Washington, our political environment right now. And I’m not blaming it all on political environment. But with the tariffs going on, there is a concern of an inflationary, problem that’s brewing in the background to where if it costs you and me thirty, forty, fifty percent more to buy whatever, a TV or a car or, for that matter, maybe groceries, then all of a sudden, you’re gonna start to pay more, which impacts fixed income securities.

Impacts meaning that you’re getting a fixed rate, five percent as an example, and it might cost you more money to buy products at the store, but that five percent stays static. So, therefore, the price of that bond, the price of that instrument is gonna go down because it has to adjust the yield with what’s going on in the system. That all sounds great and good, and and it’s maybe complicated, maybe it’s not complicated. But the fact of the matter is is that we’re seeing fixed income securities at this moment in time continue to get hurt, continue to go down in price because they’re adjusting for these tariffs that might cause inflation.

Adjusting might those are two real interesting words to use. They’re adjusting because there might be something happening. This goes back to the uncertainty we spoke about. It goes back to the overall thought that what is the market going to do?

Will the tariffs hold? What’s gonna happen with China and how that’s going to impact you and me? So with all of that said, that’s just a quick down and dirty as far as why munis are trading the way they’re trading, why high grade securities are trading the way they’re trading is because the underlying issue might be inflation, it might not. But if your time horizon is long and if you’re looking to add liquid add good quality securities through any liquidity you have now, it might be a good time to speak to either us or whomever to get an idea of what’s going on and what’s out there for sale.

And not only that, but where those securities were trading, say, three to six to twelve to fifteen weeks ago. That will put it a little bit more into perspective.

Hope that helped. Thank you.