This Week in Corporate Finance (06/08/12)

This was a week where the markets collectively looked back on the events and activity of the previous week and said, “Maybe that was a bit too much”. Equity markets were up and fixed-income markets were down, as investors were willing to add some risk to their portfolios. The big news at the end of the week was Spain’s formal request for 100 billion euros ($125 billion). Spain joins Greece, Ireland and Portugal in the group of European nations requiring a bailout.

For the week, the 2-year US Treasury note’s yield was up 2bps to 27bps; the 5-year note was up 9bps to 71bps (still 5bps lower than two weeks ago); the 10-year note was up 18bps to 1.64% (still 10bps lower than two weeks ago); and the 30-year bond was up 23bps to 2.75% (still 9bps lower than two weeks ago). As a reflection of last week’s ultra-low yields, US mortgage rates reached all-time lows, falling to 3.67% for a 30-year fixed-rate and 2.94% for a 15-year fixed-rate mortgage.

In Europe, it was a move from safety to yield. In Spain, the 10-year note rallied -31bps to drop to 6.22%; in Italy, the 10-year note weakened slightly by a modest +3bps to 5.77%; in Portugal, the 10-year note was -90bps lower to 11.07%; and even Greece got in on the act, with their 10-year note rallying by a substantial -161bps, lowering its yield to 28.93%.

Money moved out of the safety of France and Germany. The 10-year French Oat was off +25bps to yield 2.51%, while the 10-year German Bund sold-off by +16bps to 1.33%.

As money moved away from safety into higher yielding assets, the equity markets benefited, up at least +3.5%. The Dow was up +435.63 to 12,554.20 (+3.6%); the NASDAQ was up +110.94 to 2.858.42 (+4.0%); and the S&P 500 was up +47.62, crossing back over the 1,300 level at 1,325.66 (+3.7%). Facebook fell to a new low of $25.52 this week before ending the week at $27.10.

Stocks in Europe were also up. The FTSE was higher by +174.89 to 5,435.08 (+3.3%); the CAC was up +101.22, back over the 3K level to 3051.69 (+3.4%); and the DAX was up +80.53 to 6,130.82 (+1.3%). In Japan, the Nikkei was basically unchanged at +19.01 to 8,459.26 (+0.2%).

Oil snapped its five week losing streak, ending the week up +$1.11/b to $84.32/b (+1.11), after touching an intra-week low of $82.45/b.

Major global economic players continue to counteract slowing economies by lowering interest rates. China lowered their interest rates for the first time since 2008, lowering their one-year lending rate by -25bps to 6.31% from 6.56%. In Australia, the RBA lowered interest rates for the fourth time this cycle, this time by -25bps to 3.50% from 3.75%. The ECB left their key rate unchanged at 1.00%.

With all the volatility in the markets, corporate bond issuance fell to its lowest level of 2012. Even so, a number of marquee deals were still priced this week including Deere’s $2.25 billion two-tranche deal comprised of $1 billion of a 10-year note and $1.25 billion of a 30-year bond. Tyson raised $1 billion through the issuance of a 10-year note, while Sysco brought a two-part $750 million transaction made up of $300 million of a 3-year note and $450 million of a 10-year note.

The Commercial Paper (CP) market shrank for the first time in six weeks. The total amount of CP outstanding contracted by $14.7 billion from $1.029 trillion to $1.014 trillion.

Both the quarter-end and the next two-day FOMC meeting (June 19 -20^th) continue to lurk on the horizon.