This week we pretty much just bumped along, fluctuating between feelings of comfort about the direction of the US economy and the situation in Europe, and feelings of anxiety about the direction of the US economy and the situation in Europe. Until we receive some insight that would indicate we are either accelerating or decelerating to some significant degree, I suspect we will be stuck in the doldrums.
For the week, the 2-year Treasury note yield was down 1bp to 26bps (its low of the week); the 5-year note was down 1bp to 84bps (its low of the week was 82bps); the 10-year note was down 2bps to 1.98% (its low of the week was 1.94%); and the 30-year bond was down 1bp to 3.12% (its low of the week was 3.10%). The US equity markets also just bounced around; the Dow finished at 13,029.26, the NASDAQ ended at 3,000.45, and the S&P 500 ended at 1,378.53.
The story was very similar in Europe. Spain continues to have the market’s attention as the yield on its 10-year note continues to dance around the six percent mark. This week, the note traded as high as 6.16% and as low as 5.72%, before ending the week basically unchanged at 5.96%. The Italian and French 10-years notes were weaker for the week, giving up approximately 15bps each, to close the week at 5.67% and 3.09%, respectively. Germany continues to be the bastion of strength on the continent, as the 10-year Bund improved by 3bps to end the week at 1.71%. Portugal and Greece were somewhat out of the spotlight this week. The Greek 10-year note was relatively unchanged, off 12bps to close at 21.25%, while the Portuguese 10-year enjoyed a bit of a rally with its yield improving by -83bps to finish at 11.73%.
Brazil somewhat surprised the market this week by lowering its Selic rate by 75bps to 9.00% from 9.75%, which is only slightly above its all-time record low rate of 8.75%. They also left the door open for more easing in the future. Brazil’s GDP slowed to 2.7% last year.
For the first time in three years, India lowered its interest rates. The Reserve Bank of India (RBI) lowered its repo rate by 50bps from 8.50% to 8.00%. Like Brazil, the RBI is concerned that economic growth is slowing too quickly.
Corporate bond issuance is at its slowest pace for 2012 which is not surprising, given the record-setting pace of the first quarter. That said, we still witnessed a couple of significant deals starting with Lowe’s, which brought its largest transaction on record to market this week. It was a $2 billion three-tranche deal comprised of $500 million of a 5-year note, and $750 million each of a 10-year and a 30-year security. AutoZone was also in the market with $500 million of a 10-year note. Corporate yields are currently at their all-time lows on an absolute basis, according to the BAML Master index which stands at 3.392%.
The price of natural gas continues to look for a bottom. This week the price set another ten-year- plus record low of $1.90/mBTU. Prices for Nat Gas haven’t been this low since Destiny’s Child had a hit with Bootylicious.
We will be looking forward to the upcoming two-day FOMC meeting to glean some insight as to where the market might be heading for the rest of the year.
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