If this week’s Employment report had been a boxing match, I would have scored it a split decision. The April payrolls number came in weaker than expected at up +115k, versus a consensus of +160k, but if you add in the upward revisions to February and March, + 19k and +34k respectively, you come up with a gain of +168k jobs. The headline Unemployment rate number continues to grind lower, down -0.1% to 8.1% from 8.2%. If we maintain this current pace of dropping -0.1% per month, we will need another 22 months to lower us to the magical 5% handle (yes, I know 5.9%), which puts us into early 2014 to reach this goal. If you consider all the pronouncements the Fed has given us and observe where the 2-year US Treasury note is trading (currently 25bps) all signs point to this scenario. We shall see how this forecast turns out. (A shout-out to all my FP&A friends)
With the economy looking a little bit weaker, there was a bid for US Treasuries. For the week, the 2-year Treasury note yield was down 1bp to 25bps (its low of the week); the 5-year note was down 5bps to 78bps (its low of the week); the 10-year note was down 5bps to 1.88% (its low of the week and its recent technical floor); and the 30-year bond was down 5bps to 3.07% (its low of the week).
Equities in the US experienced a rollercoaster week, as they enjoyed a bit of exuberance in the early part of the week only to be extinguished by week’s end. During the week, the Dow reached its highest level since December 2007 at 13,338.66 only to end up falling nearly 200 points on the week to finish at 13,038.27. The NASDAQ fell back through the 3K floor to close the week at 2,956.34, down 112.86 and the S&P 500 finished the week back under 1,400 at 1,369.10, down 34.26.
In Europe, Germany continues to benefit from its safe-haven status. The entire German Bund curve fell to record low yields this week, despite the economic strength of its own economy. The 2-year German bund fell to 6.6bps (currently lower than the US 3-month T-bill); the 5-year Bund touched 54.6bps; the 10-year Bund dropped to 1.58% (30bps expensive to the UST 10-year); and the 30-year Bund tumbled to 2.294% (78bps through the US level).
The other European Majors finished the week with lower yields as signs of economic paralysis, high unemployment, and limited-to-no-inflation drove investors into sovereigns. The French 10-year Oat yield was 17bps lower, ending the week at 2.83%; the Italian 10-year note finished the week 21bps lower to close at 5.43%; and the Spanish 10-year note was lower by 15bps to end the week at 5.73%.
Yields in Portugal rose this week with their 10-year note giving up 62bps to finish the week at 11.10%. While still high, it is off quite a bit from the 18.29% we witnessed in late January. Greece was basically unchanged this week with its 10-year note settling at 20.57%.
In news from Down Under, the Reserve Bank of Australia (RBA) unexpectedly lowered their interest rates by 50bps from 4.25% to 3.75%, a two year low. Australia now joins Brazil, India, Russia, and the ECB as entities that have lowered their interest rates in order to spur economic growth.
The doors swung wide-open this week for corporate debt issuance. After an incredibly slow April, we witnessed our busiest week since mid-March. With Investment Grade (IG) yields at their all-time lowest absolute levels, a number of issuers jumped into the market to take advantage. GlaxoSmithKline had the marquee deal of the week with their $5 billion three-tranche transaction comprised of $1 billion of 3-year notes and $2 billion each of 5-year and 10-year notes. This was the first time Glaxo issued in US dollars since 2008. BP issued a $3 billion, two-part deal made up of $1.25 billion of a 5-year note and $1.75 billion of a 10-year note. Ericsson tapped the US dollar market for the first-time in a decade with their own $1 billion 10-year security.
I hope everyone enjoyed celebrating the sesquicentennial anniversary of the Battle of Puebla.
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