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 20th ); 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 1st); 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 1st 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 1st 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 1st, 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 18th, 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.
Happy Two Year birthday to Dodd-Frank, you’re growing up so fast.
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