This Week in Corporate Finance (12/28/12)

 At press time, we continue to sit upon the precipice of the “Fiscal Cliff” with echoes of Europe’s 1986 hit “The Final Countdown” droning on in the background. The government of the United States seems wholly incapable of steering the ship of state away from a Titanic-like disaster and we will just have to wait-and-see if there will be a last minute solution. We have no idea how the world’s financial markets will react on Wednesday morning if no agreement is reached by the time the Times Square Ball touches down on New Year’s morning.

With the uncertainty as to what will transpire between now and the end of the year, investors moved towards safety at the expense of yield. For the week, the US 2-year note yield was down -2bps to 25bps; the 5-year note yield was down -5bps to 71bps; the 10-year note yield was down -7bps to 1.70%; and the 30-year bond yield was down -7bps to 2.87%. The 4-week T-bill yield fell as low as negative -4.5bps (its lowest level since December 2008), before ending the week at 0.00%. With the expected expiration of the TAG program, the market will be watching closely to see if there is a significant migration of cash away from bank deposits and into other money-market products. Depending on the degree of the migration, interest rates on the front-end of the money-market curve could stay in negative territory for the foreseeable future.

It was a similar story in Germany, as safety trumped return. The 30-year Bund yield fell -7bps to 1.31%, the 10-year Bund dropped -8bps to 2.17%, and the 2-year Bund was unchanged at negative -1bp. The 10-year French Oat had a quiet week, up +1bp to 1.995%.

It was a quiet week across the rest of Europe as well. The Italian 10-year note was a touch weaker with its yield rising +2bps to 4.497%, the Spanish 10-year note was unchanged at 5.255%, the Portuguese 10-year note was unchanged at 7.01%, and the Greek 10-year note yield was off slightly, +1bp to 11.90%.

Corporate bond issuance is now pretty much shut down for the rest of the year, after having set a global issuance record of $3.94 trillion. Borrowing costs touched an all-time low this week of 3.27%.

While political news continues to grab all the headlines, we do have the always-important Employment report coming out this Friday. Consensus is looking for Payrolls to increase by +157k and for the Unemployment rate to creep up +0.1% to 7.8%. The next FOMC meeting is scheduled for January 29^th – 30^th.

Have a wonderful New Year!

This Week in Corporate Finance (12/14/12)

 The Federal Reserve couldn’t have been any more clear this week as to what signposts they will be following to help them determine when is the appropriate time to apply the brakes to the US economy. At the conclusion of this last scheduled FOMC meeting of 2012, the Fed took the extraordinary act of declaring that until the Unemployment rate drops to 6.5% AND the Inflation rate increases to at least 2.5%, the Fed will take no action to slow the economy down. I think it’s important to remember that this will still be a guideline rather than a strict formula. If the Fed starts to see yellow lights flashing on their economic dashboard of KPI’s, they will take whatever action they believe is appropriate.

In addition to this new explicit framework, the Fed announced an expansion of their current QE3 strategy (or the start of QE4, depending on your point of view), starting the first of the year. The Fed will begin to purchase $45 billion of Treasuries, in addition to the $40 billion of mortgage debt they are currently purchasing on a monthly basis. As 2012 winds down, so too will Operation Twist, a $667 billion program where the Fed purchased longer-dated Treasuries and sold shorter-dated ones.

Between the news of the Fed potentially stoking future inflation and no progress being made on the “Fiscal Cliff” front, US Treasuries stumbled a bit this week. For the week, the 2-year note yield was down -1bp to 23bps (we’re not expecting the 2-year yield to vary much over the next three years); the 5-year note yield was up +7bps to 69bps; the 10-year note yield was up +8bps to 1.70% (after being as high as 1.75%); and the 30-year bond yield was up +6bps to 2.87% (after being as high as 2.93%).

The 4-week T-bill yield actually fell into negative territory, for the first time since January, as investors may be moving money out of bank deposits and into short-dated Treasury bills via outright purchases, Repo and money-market funds. With no news out of Washington that the TAG program will be extended past its current expiration date of December 31^st, investors may be concerned about their potential counterparty risk exposure.

It was a relatively quiet week in Germany. The 30-year Bund yield was unchanged at 2.24%, the 10-year Bund yield sold-off +5bps to close the week at 1.35%; and the 2-year Bund moved closer to yield zero percent, as it settled the week +4bps higher, but still in negative territory yielding -4bps. It was a similar story in France as their 10-year Oat was +2bps higher but still under two percent at 1.98%.

It was a slower week in the corporate bond market as a historic year finishes up with just two major deals to report on. Crown Castle International raised $1.5 billion in a two-tranche offering consisting of $500 million of a 5-year note and $1 billion of a 10-year note. Harbinger Group issued $700 million of a note due in July 2019.

Our thoughts and prayers go out to the victims and families of the tragic event in Connecticut.

This Week in Corporate Finance (10/26/12)

Again, we experienced another week where we spent most of our time dancing about on the point of precarious balance. Is the economy ok, or is it growing too slowly? Are third-quarter earnings so weak that they foreshadow a stalling economy or is the economy on the brink of an expansion? The market wants clear and definitive answers to these questions, but what lurks on the horizon is murky at best. The FOMC met and we received our first report on third-quarter GDP, but neither event caused us to move away from our slightly positive, but weaker-than-average recovery scenario.

For the week, the US 2-year Treasury note yield was up +1bp to 30bps (after being as high as 31bps); the 5-year note was up +1bp to 76bps (after being as high as 83bps); the 10-year note was down -3bps to 1.74% (after being as high as 1.85%); and the 30-year bond was down -4bps to 2.90% (after being as high as 3.00%).

The week was a moderately more volatile than the final marks for the week would indicate. We encountered quite a sell-off in the equity markets on Tuesday, with the Dow off -1.8%; crude oil fell to its lowest level since early July, touching $84.94/barrel; and gold fell through the $1,700 floor, dropping to as low as $1,698.70/oz.

In Europe, the short-end of the yield curve out-performed the back-end as the German 2-year Bund yield fell -6bps to 5bps; the 10-year Bund was -5bps lower to close the week at 1.54%, and the 30-year Bund was unchanged at 2.41%.  The French 10-year Oat was slightly weaker this week, rising +4bps to 2.25%.

Euro-zone fears contributed to a bit of a sell-off in the weaker sovereigns. In Italy, their 10-year note yield was off +13bps to 4.90%, while the Spanish 10-year note popped +22bps to 5.59%. It was reported this week that the Spanish unemployment rate hit a new all-time high of 25.02%.

The Portuguese 10-year note was weaker by +52bps, to close back over eight percent, at 8.08%, and while it was a setback, their 10-year note had fallen to a nineteen-month low of 7.56% last week. Similar to Portugal, Greece ended its recent winning streak, as its 10-year note backed-up +84bps this week, to settle back over seventeen percent, at 17.29%.

Corporate bond issuance wasn’t quite as busy this week, though a number of marquee transactions did come to market. Plains Exploration issued $3 billion in a two-tranche deal comprised of $1.5 billion each of an eight-year and a ten-year note. Reynolds American raised $2.55 billion with a three-part offering, consisting of $450 million of a three-year note, $1.1 billion of a ten-year note and $1 billion of a thirty-year bond. This was the first bond deal for Reynolds in over five years.

Chile issued debt this week at the lowest cost ever for a Latin American country. The $1.5 billion transaction was made-up of a 10-year note with a yield of 2.38% and a 30-year bond with a yield of 3.70%. This was Chile’s first US$ offering in over a year. Chile is rated Aa3 by Moody’s, the highest credit rating in Latin America.

Bolivia made news this week as it issued its first international bond since the 1920’s. They raised $500 million with a 10-year note yielding 4.875%. Bolivia is rated BB- by S&P.

For the eighth consecutive week, the Commercial Paper (CP) market contracted. Last week, the CP market shrank by -$19.2 billion to $924.4 billion, outstanding. The CP market hasn’t been this small since January 2011.

Everyone will be waiting for Friday’s Employment Report for the month of October. This will be the last employment update we receive before the U.S. Presidential election on Tuesday November 6^th.

Here on the East coast of the United States, we are bracing ourselves for the Frankenstorm, as we might be attacked by the worst storm in the past 100 years.

Let’s all be safe and smart out there!

This Week in Corporate Finance (10/19/12)

 This was another week where we just sort of moved from one end of the trading spectrum to the other, lacking any true conviction. The last two weeks have had a bit of a “Goldilocks and the Three Bears” feel to them. Last week we saw a push into US Treasuries, as investors were concerned that economic growth was “too slow”, and this week we saw a move out of US Treasuries as growth was viewed as “too fast” (not really but it makes better copy). Maybe next week the market will view the economy as “just right”.

As stated above, this was a “risk-on” week, at least until Friday. For the week, the US 2-year Treasury note yield was up +3bps to 29bps; the 5-year note was up +9bps to 75bps (after being as high as 77bps); the 10-year note was up +10bps to 1.77% (after being as high as 1.84% as late as Thursday); and the 30-year bond was up +8bps to 2.94% (after being as high as 2.98% and knocking at the door of 3.00%).

Yields in Germany acted in a similar manner to yields in the US, as more investors were willing to sacrifice safety for a bit more yield. The 30-year Bund was off +13bps to end the week at 2.41%; the 10-year Bund was off by +14bps to close at 1.59%; and the 2-year Bund was off +7bps to finish the week at 11bps. It was a rather muted week in France, as the 10-year Oat sold-off slightly to settle at 2.21%, up +6bps.

The Italian 10-year note rallied quite nicely, as it was one of the destinations where money was moving. For the week, the note’s yield dropped -21bps to 4.77%, its lowest level since June 2011. Similar to Italy, Spain saw quite an improvement in their cost-of-funds. Their 10-year note yield fell -26bps to 5.37%, its lowest level since April.

Portugal maintained its recent winning streak, with its 10-year note falling solidly through the eight percent level, to finish the week at 7.56%, down -47bps. The yield hasn’t been this low since March 2011. The story in Greece continues to be one of improvement, as their 10-year note continued its grind lower. For the week, the note finished -160bps lower, to close at 16.45%. One would have to go back to July 2011 to find the yield as low.

The corporate bond market came roaring back to life this week with a number of blockbuster deals. I’m old enough to remember when a $1 billion deal was almost considered too big to execute. This week we witnessed Oracle return to the market, after a two year hiatus, with a two-part $5 billion transaction comprised of $2.5 billion each of a five and a ten-year note. Xstrata came to market with a four-tranche $4.5 billion package consisting of $1.25 billion of a 3-year note, $1.75 billion of a 5-year note, $1 billion of a 10-year note and $500 million of a 30-year bond. Other marquee deals of the week included JPMorgan’s $2.85 billion, UnitedHealth’s $2.5 billion and HCA’s $2.5 billion. Companies have sold over $3 trillion of bonds so far this year, second only to 2009’s issuance. The cost of investment-grade debt fell to an all-time low of 2.676% this week. Another indicator of how bullish the market is on credit product, the two-year swap spread tightened to 8bps this week, a historical low (or at least since 1988, think “Wild, Wild West” by Escape Club).

One possible consequence of all this issuance of longer-dated paper maybe a decreased need to issue Commercial Paper (CP). The CP market contracted for the seventh consecutive week falling another -$21.2 billion to $943.6 billion outstanding.

We have the next FOMC meeting on Tuesday and Wednesday.

To all of you who attended the Annual Conference in Miami Beach, what a pleasure it was to meet and spend a little time with you. See you all in Vegas next year.

This Week in Corporate Finance (10/12/12)

 In this holiday-shortened week, the financial markets continued to fret about the lack-luster pace of economic growth. The short-end of the market was basically unchanged, while the further out one went on the maturity curve, the greater the impact was.

For the week, the US 2-year Treasury note yield was unchanged at 26bps; the 5-year note was down -1bp 66bps; the 10-year note was down -6bps 1.67%; and the 30-year bond was down -11bps to 2.86%.

In Germany, there was basically no movement in the Bund market as the 30-year Bund yield was -3bps lower, falling to 2.34%; the 10-year Bund fell -2bps to 1.50%; and the 2-year Bund fell by -1bp to 5bp. The 10-year French Oat witnessed a bit of a rally as its yield fell -10bps to 2.19%.

It was a quiet week in Italy, as their 10-year bond was better, but only by -3bps, settling at 5.02%. Things were a little weaker this week in Spain, but not terribly so. The Spanish 10-year bond was weaker by +7bps, to finish the week at 5.76%. It didn’t help Spain that S&P cut their credit rating by two notches to BBB-.

Yields were a bit better in Portugal as their 10-year bond fell by -10bps to close the week at 8.12%. It was even a quiet week in Greece, as their 10-year bond continued to improve but to a smaller degree this week. Their 10-year bond yield was -15bps better, falling to 18.32%.

Issuers continue to find plenty of investor appetite for their bonds. Mizuho came to the market with a $2.5 billion two-tranche deal comprised of $1.5 billion of a 5-year note and $1.0 billion of a 10-year note.

The market will be looking forward to the two-day FOMC later this month on October 23^rd & 24^th.

I’m looking forward to seeing many of you this week at AFP’s Annual Conference in Miami Beach.

This Week in Corporate Finance (09/28/12)

Welcome to the end of the third quarter for calendar 2012. I believe we are now entering into what is typically the most interesting quarter of the year. Now that the turn of the new year is approximately 90 days away, investors, issuers, and market participants of all stripes have begun to strategize what position they want to be in at year’s end, as well as, how they want to be positioned for the first quarter of 2013. Some of the elements making this year’s fourth quarter so interesting and exciting include a presidential election, the “Fiscal Cliff”, expiration of the “TAG” program, and a continued interest in the restructuring of Money Market Funds.

This week was a continuation of the “risk-off” trade as money moved out of riskier assets and into US Treasuries. For the week, the US 2-year Treasury note yield was down -3bps to 23bps; the 5-year note was down -5bps to 62bps; the 10-year note was down -12bps to 1.63% (now only up +8bps over the past four weeks); and the 30-year bond was down -12bps to 2.82% (now only up +15bps over the past four weeks). The 2-year/30-year curve flattened by -9bps to stand at +259bps (now only wider by +14bps over the past four weeks).

As we look back at the US Treasury market over the third quarter, net-net, there really wasn’t one big story that drove the entire curve one way or the other, the story is a bit more nuanced.  The 2-year note yield was down -7bps and the 5-year note was down -13bps, reflecting a belief that the shorter-end on the curve is anchored to low interest rates for the foreseeable future (or at least into 2015 – so says the Fed). The 10-year note was down -4bps and the 30-year bond was up actually +6bps, which reflects more of a concern (though still quite small) about inflation in the longer-term. It’s also very fair to say the longer-end of the curve was basically unchanged for the quarter.

One of the bigger stories of the third quarter was the Fed’s announcement that it would be purchasing $40 billion/month of mortgage securities, also known as QE III. As a result of the Fed’s announcement, mortgage rates fell to historical lows. This week, the average 30-year fixed-rate mortgage fell to 3.40% and the average 15-year fixed-rate mortgage fell to 2.73%. Of particular note was the fact that, while the 30-year Treasury note actually rose by +6bps, during the quarter, the 30-year mortgage rate fell by -26bps.

In Europe, as concerns flared-up again about the Euro-zone, money rushed towards safety this week as Germany was again seen as a safe port in the storm. The 30-year Bund yield was down -18bps to 2.25% and the 10-year Bund was down -17bps to 1.43%.  France was also seen as a safe haven as its 10-year Oat yield fell -10bps to 2.18%. In Italy, their 10-year note yield was higher by +5bps at 5.10%

Then there is Spain. Concerns that the economic situation there has taken a turn for the worse was reflected in their 10-year note yield as it spiked back over 6 percent (topping out at 6.11%) before dropping back under at 5.95% (up +19bps for the week).

Portugal was another country of concern this week as its 10-year note yield continued its recent climb. After being as low as 8.03%, two weeks ago, it broke back through the nine percent level (peaking at 9.18%) before closing the week at 9.00% (up +42bps for the week). 

The situation in Greece continues to improve (on a relative basis). Their 10-year bond yield fell another -43bps this week to close at 19.49%. The yield has now fallen -1148bps (from 30.97%) since May 31^st.

With the start of the new quarter, we will be receiving the monthly Employment Report on Friday and the next scheduled FOMC meeting, towards the end of the month on October 23-24^th.

This Week in Corporate Finance (09/21/12)

Just like the Washington Redskins, the markets cooled off a bit this week. While there is still plenty of optimism to go around and the future is looking brighter, it’s just a bit more tempered. Now that we are fewer than seven weeks to go before the US elections, there is a general feeling the markets may in stuck in a bit of a holding pattern until November 7^th. Of course, plenty of surprises may still await us over the next month and a half, so we will have to see what unfolds.

After quite a back-up over the past two weeks, buyers saw a bit of an opportunity to jump back into US Treasuries. For the week, the US 2-year Treasury note yield was up 1bp to 26bps; the 5-year note was down -4bps to 67bps; the 10-year note was down -11bps to 1.75% (still up +20bps over the past three weeks); and the 30-year bond was down -15bps to 2.94% (still up +27bps over the past three weeks). The 2-year/30-year curve flattened by -16bps to stand at +268bps (still wider by +23bps over the past three weeks).

On the mortgage front, both the thirty and fifteen-year fixed-rate product fell to all-time historic lows. The average 30-year mortgage touched 3.49% and the 15-year mortgage dropped to 2.77%. The Fed’s recent announcement of QE III, provided quite a bit of support to the mortgage market with the Mortgage/Treasury spread falling to its tightest level ever at +61bps (a drop of -34bps from last week).

It was a similar story in Germany this week. The 30-year Bund yield was -11bps lower at 2.43%; the 10-year Bund fell -11bps to 1.60%; and the 2-year Bund dropped -6bps to 3.6bps. It was a very quiet week in France, as the 10-year Oat was up +2bps to 2.28%.

It was an uneventful week in Spain as the 10-year note yield was lower by -3bps to finish the week at 5.76%. The Spanish 10-year has now fallen -199bps since late July. The Italian 10-year note ended the week +3bps higher to close at 5.05%. During the week, the note was as low as 4.92%.

The situation in Greece continues to improve. Their 10-year note yield continued its recent trend lower, falling by another -86bps to drop back into the teens at 19.93%. We are now back to yields last seen in late March. Reversing is recent trend, the Portuguese 10-year note backed up +49bps to settle at 8.58%. The yield on this note was higher by +300bps (11.58%) as recently as late July.

Corporate bond issuance continues unabated. Both absolute and relative yields continue be at or near all-time lows. Novartis led the way this week with a $2 billion two-tranche transaction comprised of $1.5 billion of a 10-year note and $500 million of a 30-year bond. In this low interest rate environment, it makes perfect sense that we continue to see borrowers issuing debt on the longer-end of the maturity curve. Vodafone was active with its own $2 billion two-tier deal consisting of $1 billion each of a 5-year and 10-year piece. Ford was also in the market with $1 billion of a 10-year note.

As we come into quarter-end, we may see a bit of window-dressing as investment managers adjust their portfolios. Then it’s off to the beginning of the fourth quarter, which could end up being quite exciting on both the economic as well as political markets.

This Week in Corporate Finance (09/14/12)

The week here in Washington, D.C. started with a burst of excitement as our rookie quarterback, RG III, lead the Redskins to victory in New Orleans, but it was the Fed’s announcement of QE III, that truly took the market by storm. The news that the Fed would be purchasing $85 billion/month of fixed-rate securities on an open-ended basis, and that they would be targeting interest rates to be exceptionally low into 2015, gave a shot of adrenalin to the equity and commodity markets, while making longer-dated fixed-income securities less attractive. This may be the sea-change moment we have been waiting for to really get the US economy moving. Only time will tell if this is true.

For the week, the US 2-year Treasury note yield was unchanged at 25bps (the announcement of ultra-low yields until 2015, has put a ceiling on this maturity); the 5-year note was up +7bps to 71bps (up +12bps in the past two weeks); the 10-year note was up +20bps to 1.86% (up +31bps in the past two weeks); and the 30-year bond was up +27bps to 3.09% (up +42bps in the past two weeks and the highest level since May). The 2-year/30-year curve steepened by +27bps to stand at 284bps (wider by +39bps in the past two week).

It was a similar story in Germany this week, as investors moved out of safety in search of yield. The German 30-year Bund yield was up +20bps to 2.54% (its highest level since March); the 10-year Bund was up +19bps to 1.71%; and the 2-year Bund was up +6bps to 10bps. The French 10-year note was relatively quiet, with its yield only up +5bps to 2.26%. With a current pick-up of +55bps between the German and French ten-year notes, money shifted from Germany to France this week.

The Italian 10-year note yield broke through the 5% barrier, to fall as low as 4.95% (its lowest level since March) only to sell-off at bit to finish the week at 5.02% (-4bps for the week). There was a bit of unease about the situation in Spain towards the end of the week, and their 10-year note settled at 5.79% (up +16bps). The Greek 10-year note continued its recent rally as its yield fell another -83bps to finish the week at 20.79%. The Portuguese 10-year note was practically unchanged at 8.09%.

It was another busy week for corporate debt issuers. Walgreens was in the van this week with their $4 billion five-tranche transaction. The deal was comprised of $550 million of an 18-month FRN, $750 million of a 2.5 year note, $1 billion of a 5-year note, $1.2 billion of a 10-year note, and $500 million of a 30-year bond. Also in the market this week was Merck with a $2.5 billion offering made-up of $1 billion each of a 5.5-year and a 10-year note and $500 million of a 30-year bond.  

The US equity markets responded to the news of QE III by soaring to multi-year highs. The Dow closed the week at 13,593.37 and the S&P 500 settled at 1,465.77, both the highest levels since December 2007. The NASDAQ finished the week at 3,183.95, its highest level since November 2000 (think Creed’s “With Arms Wide Open”).

We will be watching to see if the markets can maintain their positive momentum in the second half of September.

This Week in Corporate Finance (09/07/12)

 Welcome to September 2012 and a continuation of our very orderly and polite financial markets. This is quite a change from the September we experienced only four years ago back in 2008. We really had the feeling we might be off to the races before the release of the monthly Employment Report, as we were riding some reasonably good news out of Europe. The weaker than expected Employment Report (+96K versus consensus of +125K) took a bit of wind out of the market’s sails, but net-net it was positive week.

For the week, the US 2-year Treasury note yield was up 3bps to 25bps; the 5-year note was up 5bps to 64bps; the 10-year note was up 11bps to 1.66%; and the 30-year bond was up 15bps to 2.82%. The 2-year/30-year curve steepened by 12bps to now stand at 257bps.

With the news of the ECB potentially buying more sovereign debt, investors moved from ultra-safe names to add a bit more yield to their portfolios. The German 30-year Bund was off +22bps to close at 2.34% (the highest yield since early May); the 10-year Bund was +19bps higher to settle at 1.52%; and the 2-year Bund was +7bps higher to close at positive 3bps, the first time it has finished a week with a greater-than zero yield since early July. The French 10-year Oat was of by +5bps to close at 2.21%.

Spain and Italy were beneficiaries of the ECB’s largesse. Spain’s 10-year note yield fell an incredible -123bps, crashing through six percent to settle at 5.63% (its lowest close since early May). A week ago, we were worrying once again if Spain would be trending back north of seven percent, what a difference a week can make. In Italy, their 10-year note yield fell -79bps to 5.06% (its lowest level since late March).

The Greek 10-year note fell -179bps to 21.62% (its lowest level since early May). In Portugal, their 10-year yield dropped -121bps to 8.10%. One has to go back to March 2011 to find yields this low.

Will the latest action by the ECB be the mythical silver bullet that will finally put the Europe economy on the path to recovery? Only time will tell, but so far the market seems to believe so.

On the Corporate front, debt issuance was quite brisk as we came out of the normal pre-Labor Day quiet period. Adding a bit of fuel to the fire was the fact that corporate yields, on an absolute basis, touched an all-time low this week of 3.84%. A number of issuers stepped up to the plate to take advantage.

Leading the charge was WellPoint with their $3.25 billion four-tranche deal. It was comprised of $625 million of both a 3-year and 5-year note and $1 billion each of a 10-year note and a 30-year bond. Deere raised $1 billion with the issuance of a two-part transaction made up of $500 million of both a 3-year and 5-year note.

The market will be watching for news out of the Fed with the conclusion of the FOMC meeting on Wednesday. Is the US economy so weak that the Fed will announce new simulative measures to kick-start it?

Stay tuned 

This Week in Corporate Finance (08/31/12)

With the dog days of August finally behind us, we enter into the home stretch of 2012. It will probably be an exciting last four months of the year, so market participants should be prepared for an interesting ride.

This was a classic late-summer news-lite week, with all eyes focused on Chairman Bernanke’s annual speech in beautiful Jackson Hole, Wyoming (one of my most favorite places in the world). The Chairman reaffirmed the Federal Reserve’s commitment to kick-start the economy through another round of qualitative easing (QE3) if circumstances require such action. The general tone of this announcement was expected by the markets, and they rewarded the Chairman with a bit of a rally in both the fixed-income as well as the equity markets.

For the week, the US 2-year Treasury note yield was down 5bps to 22bps; the 5-year note was down 12bps to 59bps; the 10-year note was down 14bps to 1.55%; and the 30-year bond was down 13bps 2.67%. We now have talk of interest rates staying in this ultra-low environment until 2015. That was part of the reason the 2-year note rallied as much as it did.

It was a relatively quiet week in Europe. In Germany, the 30-year Bund yield was down -4bps to 2.12%; the 10-year Bund was lower by -3bps to 1.33%; and the 2-year Bund continues its travels in negative yield-land, down another -3bps to -4bps. The French 10-year Oat actually sold-off a bit, giving up 10bps to finish the week at 2.16%.

Spain had a slightly rough week. The yield on its 10-year note was higher by 44bps, driving its yield up to 6.86%, and raising concerns as it approaches the seven percent level, yet again. The Italian 10-year note was also off the week, but not to the same magnitude. It was higher by 14bps to settle at 5.85%, making investors nervous, as it floats near the six percent level.

Greece continues to perform as its 10-year note rallied another -56bps this week to close at 23.41%. The yield on the Greek 10-year has been dropping steadily since its recent peak back in late May. In was rather quiet in Portugal, as their 10-year rallied, but only by -9bps, to close the week at 9.31%.

There was a fair amount of M&A activity this week. Companies may be feeling the pressure to start deploying some of that $2 trillion sitting on their balance sheets. M&T purchased Hudson City for $3.7 billion, Daikin bought Goodman for $3.7 billion, and Hertz acquired Thrifty for $2.6 billion.

In South American this week, Brazil lowered it Selic rate for the ninth time in this easing cycle that started back in August 2011. The rate was lowered by -50bps from 8.00% to 7.50%, a new all-time low level.

As we look into September, the market will be focused on both the upcoming Employment Report, as well as the next FOMC meeting scheduled for September 12^th – 13^th.

This Week in Corporate Finance (08/24/12)

As we come into the final turn of the summer, we bask in our third consecutive week of basically “drama-free” financial markets. After some of the Augusts we have experienced over the past five years (and I’m one who is still scarred from August 1998) this is a quite a welcomed change. The rally in Treasuries this week mostly recouped the sell-off from last week, which pretty much just leaves us where we started two weeks ago. All this activity seems to be occurring in a very stable and non-threatening manner. All good signs of a market that is healing.

For the week, the US 2-year Treasury note yield was down 2bps to 27bps (after being as low as 25bps); the 5-year note was down 9bps to 71bps (after being as low as 67bps); the 10-year note was down 12bps to 1.69% (after being as low as 1.64%); and the 30-year bond was down 13bps 2.80% (after being as low as 2.76%). The general reason for the rally was a renewed belief that the Fed will provide an additional round of stimulus to the US economy if it believes it is necessary.

It was a relatively quiet week in US equities. After touching multi-year highs in the early part of the week, stocks finished the week a bit weaker. The Dow was off -117.23 to close at 13,157.97; the S&P 500 was down -7.03 to finish at 1,411.13; and the NASDAQ fell -6.80 to settle at 3,069.79.

Similar to the US, Germany experienced a bit of a rally this week. The 30-year Bund yield was lower by -14bps to close at 2.16%; the 10-year Bund was down by -14bps to settle at 1.36%, and the 2-year Bund yield actually crossed back into positive territory for the first time since mid-July before finishing the week at -1bp. The French 10-year Oat also rallied this week as its yield fell -7bps to 2.06%.

The Spanish 10-year note finished practically unchanged at -2bps, to end the week at 6.42%. The Spanish 10-year note has now been under seven percent since August 6^th.  The Italian 10-year note improved by -8bps to close at 5.71%.

The situation in Greece continues to improve as measured by its bond yields. The Greek 10-year note maintained its recent winning streak as it dropped another -41bps this week to settle at 23.97%. This was the first time the Greek 10-year bond has been under 24% since mid-May. It was a similar story out of Portugal as their 10-year note rallied by -36bps to finish the week at 9.40%, which is its lowest yield in over sixteen months (April 2011).

The big news in money-marketland this week was the announcement by the SEC that it would not be moving forward with any new changes to the structure of Money-Market Funds (MMF). There was great concern that the SEC would try to introduce a mandatory floating NAV and/or some kind of holdback of principal to MMFs, but at the end of the day, Chairman Schapiro did not have the necessary three votes and conceded that no changes would be forthcoming in the foreseeable future. The Financial Stability Oversight Council (FSOC) may try to amend how MMFs operate, but that remains to be seen.

This Week in Corporate Finance (08/17/12)

 A pleasant welcome to another week where the overall feeling of the market was rather positive. I can’t remember the last time we actually experienced two consecutive feel-good weeks. Shall we be optimistic and hope for a third? A continuation of slightly better than expected economic news with the absence of any horrific “black swan” events helped drive the market to a risk-on trading mentality as investors continued to move from safety to yield.

For the week, the US 2-year Treasury note yield was up to 3bps to 29bps; the 5-year note was up 9bps to 80bps (after being as high as 82bps); the 10-year note was up 15bps to 1.81% (after being as high as 1.86%, quite a jump from its recent all-time low yield of 1.44%); and the 30-year bond was up 18bps to 2.93% (after being as high as 2.96%).With this increase in Treasury yields, US mortgage rates have also moved in a similar trajectory with those levels, increasing for the third consecutive week.

If one wishes to visualize the Treasury market as a balloon, I would argue we have been experiencing a very orderly and controlled “pressure reduction” as air escapes. The “End of Times” fears that recently drove Treasury yields to all-time lows seem to be vanishing on the horizon. There are still a multitude of challenges that need to be addressed, but the recent trend gives one cause for hope.

Yields in Germany and France crept up this week. The yield on the German 30-year Bund was up 6bps to 2.30%, the 10-year Bund was up 10bps to 1.50%, and the 10-year French Oat was up 4bps to 2.13%.

The Spanish 10-year staged quite a rally as its yield dropped -40bps to 6.44%, its lowest level in over a month. Italy saw an improvement in its cost-of-funds, though not as dramatic as Spain’s, with their 10-year note yield falling by -11bps to 5.79%.

It was a quiet week in Greece (which in and of itself is a “good” thing) as its 10-year was basically unchanged at up 4bps to 24.38% and Portugal continued to enjoy sub-ten percent funding in the 10-year sector with their security rallying -18bps to fall to 9.76%.

Corporates continue to be opportunistic as they maintain elevated levels of debt issuance into a strong market. Rio Tinto led the charge this week with their $3 billion three-tranche transaction comprised of $1.25 billion of a 5-year note, $1 billion of a ten-year note, and $750 million of a 30-year bond. Royal Dutch Shell came to the market with its first bond transaction since 2010, with its own three-tier offering consisting of $1 billion each of a 5 and 10-year note, and $500 million of a 30-year note. Companies continue to extend the duration of their debt maturity profile as investors maintain an almost insatiable appetite for longer-dated securities.

It was a relatively quiet week in US equities, as the indexes all finished the week higher, albeit nothing to write home about. The Dow was up +67.25 to finish at 13,275.20, the S&P 500 was up +12.29 to close at 1,418.16 and the NASDAQ was up +55.73 to settle at 3,076.59. Two stocks in the headlines this week were Facebook and Groupon. During the week, Facebook touched a new all-time low of $19.01/share, and Groupon fell to a new all-time low of $4.51/share.

Oil continued its recent surge finishing the week up +$2.93 at $96.18/barrel, while gold was rather muted this week, down -$2.40 to settle at $1,617.30 /oz.

Will the recent streak of quiet and positive weeks continue?

Stay tuned………

This Week in Corporate Finance (08/10/12)

 This week was a pleasant change of pace as we experienced an old-fashioned, steady-as-she-goes, no-news-is-good-news kind of week. We witnessed a few hints that the worst-of-the-worst may be behind us and that our forward trajectory may be on the ascent. Both here and abroad, money moved from safety to risk, as chasing incremental yield became the focus of the week.

Here in the US, the 2-year Treasury note yield was up to 2bps to 26bps; the 5-year note was up 4bps to 70bps; the 10-year note was up 10bps to 1.66%; and the 30-year bond was up 10bps to 2.74%.

In Germany and France, there was still a bit of a flight-to-safety as the European economy looks to be fragile at best. The 30-year Bund yield was -2bps lower to 2.23%; the 10-year Bund was -3bps lower to 1.39%; and the 2-year Bund continues to float in negative territory, falling -5bps to negative -7.4bps. The French 10-year Oat was -3bps lower at 2.08%.

Spain continues to dance on the razor’s edge. This week their 10-year bond yield was up 6bps to 6.91%, dangerously close to the optically important seven percent, while Italy experienced a nice little rally this week as the yield on its 10-year bond fell -15bps to back under six percent at 5.90%.

The situations in Greece and Portugal continue to improve. The Greek 10-year note yield was -95bps lower this week to 24.36%, the lowest yield since mid-May and the Portuguese 10-year yield was lower by a similar -100bps to 9.98%, the first time the yield has been lower than ten percent since late June.

With interest rates continuing to hover near historical lows, corporations continue to bring bond-deals to the market, where there continues to be plenty of investor appetite. Altria lead the pack with their $2.8 billion two-tiered transaction consisting of $1.9 billion of a 10-year note and $900 million of a 30-year bond; PepsiCo raised $2.5 billion in a three-tranche sale comprised of $900 million of a 3-year note, $1 billion of a 5-year note, and $600 million of a 30-year bond; Community Health Systems raised $1.6 billion with a six-year security; Celgene raised $1.5 billion in a two-part deal made-up of $500 million of a 5-year note and $1 billion of a 10-year note; and Sprint issued $1.5 billion of an 8-year note. This was the busiest week for corporate bond issuance since March.

In the US, the equity indexes all finished the week higher with the Dow up over 100 points to close at 13,207.95; the NASDAQ settled back over 3K at 3,020.86; and the S&P 500 crossed back over 1,400 to finish the week at 1405.87.

Equity markets in Europe were up over one percent this week, with the FTSE closing at 5,847.11; the CAC settling at 3.435.62; and the DAX making a run at 7K, finishing the week at 6,944.56.

On the commodity front, gold was up slightly this week to finish at $1,619.70/oz, oil was up nearly $2 to finish at $93.25/barrel, and corn reached an all-time high of $8.2957/bushel.

Maybe we shall have two relatively quiet weeks in a row…….

This Week in Corporate Finance (08/03/12)

 After getting through last week’s topsy-turvy ride, who would have thought we would experience a déjà vu moment all over again, complete with marginally good (at-best) news causing the equity markets to soar and the fixed-income markets to swoon at week’s end. This week started out with hope that the Fed and/or the ECB would provide some clarity as to what they might be planning to do, or at least thinking about what they were planning on doing in regard to the current economic challenges we’re facing, both here in the US as well as in Europe. Unfortunately for the market, no news was forthcoming and treading water became the strategy for most of the week with equities and commodities off, while fixed-income saw some strength.

On Friday, the Employment report was released, and while it came in stronger than consensus (+163k v. +100k) and stronger than the previous month (+163k v. +64k), by historical standards it was a rather benign report. The market interpreted the data in quite a different way, and saw it as a green light to put risk back on. As a result, equities and commodities rose while bonds fell.

After spending most of the week in the black, US Treasuries gave up all of their gains for the week and finished basically unchanged on the week. The 2-year note was unchanged at 24bps (after being as low as 21bps); the 5-year note was up 1bp to 66bps (after being as low as 58bps); the 10-year note was up 1bp to 1.56% (after being as low as 1.46%); and the 30-year bond was up 1bp to 2.64% (after being as low as 2.54%).

It was a similar story in Europe, as the German 10-year Bund finished the week +2bps at 1.42%, while the 2-year Bund closed basically unchanged at -2bps (after falling to a new all-time low yield of -9.7bps). The French 10-year Oat still finished the week down -11bps to 2.11% (after falling to a new all-time low yield of 2.002%).

The US equity markets responded quite positively to the Employment Report. On Friday, the Dow crossed back through the 13K mark, to finish at 13,096.17, the NASDAQ is knocking on the door of 3K, settling the week at 2,967.90 and the S&P 500 is creeping up on 1,400, closing the week at 1,390.99.

European stock markets were up substantially after the job numbers. The FTSE was up over two percent to 5,787.28, the DAX was up almost four percent to 6,865.66 and the CAC was up over four percent to 3,374.19.

Gold is now back over $1,600/oz to finish the week at $1,606.00 and oil gained almost five percent to settle at $91.40/barrel.

This was another week where we saw corporate treasurers taking advantage of historically low yields and bringing deals to market. Texas Instruments raised $1.5 billion in its two-tranche transaction comprised of $750 million each of 3-year and 7-year notes. Both securities carry record low yields for corporate bonds with those tenors. The three-note note has a coupon of 45bps and the seven-year note has coupon of 1.65%. Unilever also came to market this week, raising $1 billion in its own two-part deal consisting of $450 million of a three-year note and $550 million of a five-year note. The 3-year note has a same record low coupon that TI received at 45bps.

The market will continue to look for direction as we float along in this slow-growth recovery.

This Week in Corporate Finance (07/27/12)

We survived yet another week where it seemed at times we were on the cusp of tumbling over the edge into an abyss. Monday through Wednesday had a bit of an “End of Times” feel to it as the world watched to see if Europe had actually given-up-the-ghost. The stronger nations of the world watched their interest rates plummet to historical lows, while the weaker nations witnessed their yields soar into the stratosphere. On Thursday, President of the ECB, Mario Draghi, soothed the market’s skittish nerves with words of encouragement that Europe did indeed possess the intestinal fortitude to save itself. Interest rates reversed course and with the additional news of the US economy growing a little stronger in the second quarter than expected, the market rode into the weekend with a much more positive tone than where it closed on Wednesday evening. The big question on everyone’s mind is whether this is just another of the many head fakes we have suffered through over the past 4-plus years, or are we really on the path to sustainable economic growth and stability?

For the week, the US Treasury 2-year note was up 4bps to 24bps (after dropping to 19.95bps, its lowest level since September 20^th ); the 5-year note was up 8bps to 65bps (after falling to a new record low of 53.94bps); the 10-year note was up 9bps to 1.55% (after falling to a new record low of 1.3790%); and the 30-year bond was up 9bps to 2.63% (after falling to a new record low of 2.4405%). The average rate on a 30-year fixed-rate mortgage also fell to a new record low of 3.49%, more than 100bps lower than where we were a year ago (4.55%).

It was a similar story in Germany; the 30-year Bund fell to as low as 2.02% before ending the week at 2.27% (+21bps), the 10-year Bund tied its all-time low of 1.127% before finishing the week at 1.40% (+23bps), and the 2-year Bund dropped to its all-time low yield of negative -8bps before closing the week at negative -3bps (+4bps).

Spanish yields did an excellent job of encapsulating the rollercoaster ride we experienced this week. At its nadir, the Spanish 10-year note yield rocketed to an all-time high of 7.751% and seemed to be heading towards eight percent, but with the change of market sentiment, the yield settled the week at 6.74% (-53bps, week-on-week). This was the fourth time the 10-year eclipsed the seven percent handle, only to drop back through it.

The Italian 10-year note yield rose as high as 6.706% (its highest level since mid-January) before retreating back through the six handle to close the week at 5.96% (-64bps week-on-week).

The Euro this week dropped as low as $1.2043, which is less than its lifetime average of $1.2087, and the lowest level since $1.1877 in June 2010. One would then have to go back to 2006 to find the Euro as weak against the US dollar. Like most other markets, the Euro found strength in the later part of the week and finished at $1.2303.

With yields at or close to historical lows, a number of corporate issuers took advantage of the situation and raised a fair bit of debt at very attractive levels. FedEx raised $1 billion in a two-tranche transaction comprised of $500 million of a 10-year note and $500 million of a 30-year bond. This was the first time FedEx issued in the 30-year tenor since 1989 (think “Every Rose has Its Thorn” by Poison). IBM also came to the market this week with $1 billion 10-year note. The coupon on the note was 1.875% which makes it the lowest coupon ever for a US dollar corporate bond in the ten-year sector.

The Dow crossed the 13K mark this week for the first time since May and finished the week at 13,075.66, while the NASDAQ made a run at 3K closing at 2958.09.

The market will be keenly awaiting any news coming from the Fed as it concludes its regularly scheduled FOMC meeting on Wednesday as well as anything the Employment Report may hold in store for us when it is released on Friday. The expectation is for Payrolls to increase by +100K and for the Unemployment Rate to remain unchanged at 8.2%.

On a side note, there is a new book out on the financial crisis, “The Lost Bank: The Story of Washington Mutual” by Kirsten Grind, it should be an interesting read.

This Week in Corporate Finance (07/20/12)

This was just another uneventful week where we didn’t receive any fresh or earth-shattering news, but instead just seemed to be weighed-down by an economic environment that seems to leave us just stuck in the mud. We’re moving forward, but every step requires herculean effort and results in us moving at an elephantine pace. Investors continue to vote with their dollars, Euros, yen, sterling, etc., and their preference this week was for safety.

US Treasuries continue to be a recipient of money moving away from risk. For the week, the 2-year note was down 5bps to 20bps (dropping to 20.15bps, its lowest level since September 20^th ); the 5-year note was down 5bps to 57bps (falling to a new record low of 56.84bps); the 10-year note was down 1bp to 1.46% (after falling as low as 1.4403%, nearly breaking the record low of 1.4387% reached on June 1^st); and the 30-year bond was down 2bps to 2.54% (after being as low as 2.52%, not far from its all-time low yield reached on June 1^st of 2.5089%).

Germany and a number of other “core” sovereigns continue to be the beneficiaries of the “risk-off” trade. The 30-year Bund was down -7bps this week to 2.06%; the 10-year Bund continues to head back towards record-low yields, the security dropped -9bps this week to 1.17%, not far from its all-time low yield of 1.127% reached back on June 1^st and the 2-year Bund continues to thrive in Peter Pan’s “Never Never Land” as its yield remained under 0% and actually fell another -3bps this week to settle at -7.4bps.

The French 10-year Oat fell -16bps to close the week at a new record low yield of 2.07%. It’s hard to remember the 10-year Oat soared as high as 3.82% back in November. The Belgian 10-year fell -22bps to 2.47%, a new all-time low yield, after it had also spiked in November to 5.91%. France and Belgium as well as a number of other “core” sovereigns have witnessed a fair amount of money flow to them as the yields in Germany continue to plunge. With a bit of a yield pick-up and not a lot incremental risk, this trade has been very popular over the past two weeks.

Then we have Spain. The trend-line for Spain has been one-dimensional since March. Starting at 4.832% on Thursday March 1^st, the Spanish 10-year is up +242bps to a near-record high of 7.284%. With this week’s surge of +60bps, the Spanish 10-year note has now crossed the “Rubicon” of seven percent four times since June 18^th, and while it dropped back in the sixes the three prior times, it remains to be seen whether that will happen again or will Spain’s cost of funds continue to rise?

Italy continues its ongoing “Danza Macabra” as its 10-year note flirts with the six percent level. For the week, the yield was up +11bps to 6.17%. After being as high as seven percent as recently as January, Italy continues to battle for its economic well being.

The Euro fell to a fresh 25-month low this week dropping to $1.2144, the lowest level since June 2010.

The LIBOR scandal continues to generate headlines both here in the US as well as around the world. You know it must be something big when the story moves from the financial trades to the mainstream media. (It’s never a good sign when Joe K. and the gang are talking about “The LIBOR” in the morning on CNBC).  But to truly witness how widespread the story has become, check out this link to “The Daily Show with John Stewart” and gauge for yourself.

http://www.thedailyshow.com/watch/wed-july-18-2012/international-banking-actuality-part-37---libor-fallout

Happy Two Year birthday to Dodd-Frank, you’re growing up so fast.

This Week in Corporate Finance (07/12/12)

The narrative for this week was not much changed from last week; weak economic growth had investors seeking safety rather than risk. We witnessed some near-record low yields in the US, and some all-time low yields in other parts of the world. Unless we receive some type of news that is dramatically different from what we have been recently experiencing, we should expect to stay in this uber-low yield environment for the foreseeable future.

Here in the US, for the week the 2-year note was down 2bps to 25bps; the 5-year note was down 2bps to 62bps; the 10-year note was down 8bps to 1.47% (not far from its all-time low yield of 1.4387% reached on June 1^st); and the 30-year bond was down 10bps to 2.56% (also not far from its all-time low yield reached on June 1^st of 2.5089%). It is also interesting to note that the “term premium” (a model the Fed uses to incorporate expectations for interest rates, growth and inflation) shows US Treasuries at their most expensive level ever, at negative -96.17bps.

The cost of home mortgages in the US dropped to their lowest levels since at least 1971 (think “American Pie” by Don McLean). The average rate for a 30-year fixed rate mortgage fell to 3.56% and the average rate on a 15-year fixed mortgage fell to 2.86%.

In Germany, the 30-year Bund was down -5bps to 2.13%, the 10-year Bund was down -8bps to 1.25% (not far from its all-time low yield of 1.17% reached on June 1^st), and the 2-year Bund fell -3bps to yield an almost unbelievable negative -4.2bps.In France, the 10-year Oat fell -14bps to 2.24%, while the 5-year Oat also fell -14bps to a new all-time low yield of 88.8bps. In Belgium, their 10-year note fell -15bps to an all-time low yield of 2.644%.

In Spain, after crossing back over the seven percent handle earlier in the week, their 10-year note dropped -31bps to close at 6.64%, while the Italian 10-year note fell by -12bps to back under six percent at 5.91%.

It was another quiet week in Greece as their 10-year note continued to slowly improve, this week by -34bps to 25.33%, its lowest level since mid-May. In Portugal, the recent deterioration of their credit continues as their 10-year note yield rose +37bps to 10.58%.

The Euro fell to a fresh 25-month low this week dropping to $1.2167, the lowest level since June 30, 2010.

Brazil lowered their Selic rate for the eighth time since the fall of last year. This week’s move was -50bps, bringing the benchmark rate down to an all-time low yield of 8.00%.  The Bank of Korea also lowered interest rates this week. It was the first ease for South Korea since February 2009. South Korea started increasing interest rates in July of 2010, and tightened fives through July of 2011. The -25bps easing this week lowered the seven-day repo rate to 3.00%.

All eyes will continue to be focused on the upcoming FOMC meeting at the end of the month to see if the Fed will introduce any new economic stimulus to the US economy.

This Week in Corporate Finance (07/06/12)

Seeing the job report released on Friday, made me think of the old Chevy Chase opening to “Weekend Update” on Saturday Night Live, “Our top story tonight: Generalissimo Francisco Franco is still dead”. Even with all the news of the past three weeks, we are basically in the same place we were on June 15^th.

The major news of the week here in the US, was the Employment report which reconfirmed our ongoing scenario of positive but weak employment growth, with positive but lackluster economic growth. The US economy added a subpar +80K jobs in June with the Unemployment Rate holding steady at 8.2%. On the bright side, this was the twenty-eighth consecutive month of job creation. The quandary is that this rate of job creation does not equate to anything other than running-in-place. We need to see job creation around +300K/month to truly start driving down the unemployment rate, while at the same time boosting our GDP back up into the +3% neighborhood. Unfortunately, there is nothing on the foreseeable horizon that would cause one to believe that is about to occur.

From two weeks ago, US Treasuries have rallied.  The 2-year note is down 3bps to 27bps; the 5-year note is down 11bps to 64bps; the 10-year note is down 12bps to 1.55%; and the 30-year bond is down 10bps to 2.66%. As stated earlier, this is almost exactly the same shaped yield curve we had on Friday June 15^th.

It’s also been quite an interesting two weeks in the ROW (Rest-of-the-World). Last Friday, with the Spanish 10-year note flirting around seven percent and the Italian 10-year dancing north of 6.25%, European Union leaders announced a framework for additional support for the weaker nations of the EU. The market reacted with a massive hopium-induced rally. Stock markets soared and bond yields fell. Unfortunately, with the benefit of a little time and a bit of sobriety, the market realized that reality hadn’t noticeably changed at all, and the outlook for Europe continues to look rather bleak.

Since June 18^th, the Spanish 10-year note has traded in a range of 6.15% (post-announcement low) to 7.285% (an all-time high) and traded as high as 7.036% on Friday. Anything higher than seven percent is considered in the “danger zone” (I always hear Kenny Logins whenever anyone mentions that term). The Italian 10-year note has floated in a range of 5.59% to 6.34%, finishing the week at 6.03%.

Germany continues to be a harbor for safety. This week, the 30-year Bund yield dropped -15bps to 2.18%, the 10-year Bund fell -15bps to 1.33% and the 2-year Bund made history this week with its yield actually going negative and trading as low as -1.8bps. It is just incredible (and a little scary) that investors are willing to lock-in a guaranteed loss in order to protect themselves from an even greater potential loss. France is also seen as a rather safe place to park money. Their 10-year note improved by -31bps, to close the week at 2.38%.

Quietly, Greece and Portugal have continued to improve slowly, or at least not get materially worse. The Greek 10-year note fell -16bps this week to 25.67%; this is its lowest level since mid-May. The Portuguese 10-year note yield was actually up +5bps this week to 10.21%, but given that it was as high as 18.29% back in late January, a ten-handle looks rather benign.

The other big news this week was Central Bankers lowering interest rates. In China, the People’s Bank of China announced its second interest rate reduction in a month, lowering their benchmark rate by -31bps to 6.00%, its lowest level since February 2011. China had started a tightening cycle back in October of 2010 which ended last month.

The European Central Bank (ECB) also lowered interest rates this week. The ECB lowered its benchmark rate by -25bps to an all-time low of 75bps. Even during the height of the financial crisis back in early 2009, the ECB didn’t go lower than 1.00%. It’s amazing to remember that the ECB actually RAISED interest rates twice last year to 1.50% before quickly unwinding them by year’s end.

With the recent ECB easing, the Euro is currently trading at twenty-five month low of $1.2266. The five-year low for the Euro is $1.19 reached back in June 2010.

This week, the Commercial Paper (CP) market suffered its biggest contraction since the week of December 1, 2010, shrinking by -$35.7 billion to $972.5 billion outstanding. The CP market had been growing since the start of the year until stalling out in late-May. After rising to $1.029 trillion outstanding in the week of May 30^th (the highest level since September 2011), the market has struggled to stay north of $1 trillion.

Oil continues to be a bit volatile. Since April 23^rd, oil has traded between $105.68/b and a thirty-four month low of $78.28/b reached on June 28^th. It has since bounced up from there and is currently trading at $84.24/b.

In addition to everything else that is going on, the LIBOR scandal continues to unfold on both sides of the Atlantic and we continue to wait-and-see if there will be any new changes to the way the SEC regulates the $2.5 trillion Money-Market Funds market.

On the near horizon, the market will continue to try to interpret the economic tea-leaves to divine what, if anything, the Fed may announce at their upcoming two-day FOMC meeting on July 31^st and August 1^st.

Stay tuned.