The market took a bit of a breather this week as concerns about the relative strength of the economic recovery around the world caused money to move towards safety rather than towards risk. The US Treasury market improved after last week’s substantial sell-off. For the week, the 2-year note yield was down 1bp to 35bps (after reaching 39bps last week, its highest level since August); the 5-year note was down 3bps to 1.08% (after hitting an intra-week high of 1.18%); the 10-year note was down 6bps to 2.23% (after rising to 2.39%, its highest level since late October); and the 30-year bond was down 9ps to 3.31% (after hitting 3.49%., its highest level since early September).
The US equity markets were slightly off this week. The Dow, after peaking at 13,289.08, closed this week down -208.35 to 13,080.73; the NASDAQ hit a new eleven-year high this week of 3,087.10 before falling a bit to finish the week at 3,067.92; and the S&P 500 peaked at 1,414.00 (a four-yield high) before dropping to 1,397.11.
The story was somewhat similar in Europe, as in general, stocks were off and the safest sovereigns benefitted. The FTSE was off -110.69 to finish as 5,854.89; the DAX slipped by -198.71 points, to end back under 7K, and close at 6,995.62; and the CAC was down -118.65 to settle at 3,476.18.
In the Fixed-Income market, we saw the stronger names trade better, and the weaker names cheapen. Spain continued its recent decline, as it has traded off all month long. This week the Spanish 10-year note yield rose another 17bps to close at 5.37%, after getting as cheap as 5.54%. The Italian 10-year security also sold-off to finish the week 18bps higher at 5.04%. Both the French and German 10-year notes improved during the week. The French 10-year Oat was better by 7bps, and its yield dropped to 2.95%, while the 10-year German Bund improved by 18bps, driving its yield down to 1.87%.
If one was to graph the path of the 10-year Bund since March 12th, it would resemble the trajectory of a mortar round. From an initial low yield of 1.74% on the 12th to an apex of 2.07% on the 16th, and as the expected drop of a mortar due to the earth’s gravitational pull, the yield fell back down to 1.87% on the 23rd.
It continues to be an interesting world following the developments in Portugal and Greece. This week, the market considered Portugal to be less-risky, and rewarded 10-year bond-holders with a 108bps rally lowering the yield to 12.58%. On the other hand, even after the recent restructuring, the market penalized investors in Greek debt as the yield on their 10-year security sold-off by 192bps raising the yield back over 20%, to close at 20.10%.
Even with a bit of volatility in the market, Europe experienced one of its busiest corporate debt issuance weeks in over two years. EDF issued 1.5 billion euro in a two-tranche transaction comprised of 1 billion euro of fifteen-year notes and 500 million euro of 25-year bonds. Fiat was also in the market, selling 850 million euro of five-year paper, while Daimler sold 750 million euro of seven-year paper.
This week we’re heading into our first quarter-end of 2012, so the markets may be trading a little on the technical side as the week winds down.
Happily, I’m still alive in my NCAA pool!
No comments:
Post a Comment