This Week in Corporate Finance (08/24/12)

As we come into the final turn of the summer, we bask in our third consecutive week of basically “drama-free” financial markets. After some of the Augusts we have experienced over the past five years (and I’m one who is still scarred from August 1998) this is a quite a welcomed change. The rally in Treasuries this week mostly recouped the sell-off from last week, which pretty much just leaves us where we started two weeks ago. All this activity seems to be occurring in a very stable and non-threatening manner. All good signs of a market that is healing.

For the week, the US 2-year Treasury note yield was down 2bps to 27bps (after being as low as 25bps); the 5-year note was down 9bps to 71bps (after being as low as 67bps); the 10-year note was down 12bps to 1.69% (after being as low as 1.64%); and the 30-year bond was down 13bps 2.80% (after being as low as 2.76%). The general reason for the rally was a renewed belief that the Fed will provide an additional round of stimulus to the US economy if it believes it is necessary.

It was a relatively quiet week in US equities. After touching multi-year highs in the early part of the week, stocks finished the week a bit weaker. The Dow was off -117.23 to close at 13,157.97; the S&P 500 was down -7.03 to finish at 1,411.13; and the NASDAQ fell -6.80 to settle at 3,069.79.

Similar to the US, Germany experienced a bit of a rally this week. The 30-year Bund yield was lower by -14bps to close at 2.16%; the 10-year Bund was down by -14bps to settle at 1.36%, and the 2-year Bund yield actually crossed back into positive territory for the first time since mid-July before finishing the week at -1bp. The French 10-year Oat also rallied this week as its yield fell -7bps to 2.06%.

The Spanish 10-year note finished practically unchanged at -2bps, to end the week at 6.42%. The Spanish 10-year note has now been under seven percent since August 6^th.  The Italian 10-year note improved by -8bps to close at 5.71%.

The situation in Greece continues to improve as measured by its bond yields. The Greek 10-year note maintained its recent winning streak as it dropped another -41bps this week to settle at 23.97%. This was the first time the Greek 10-year bond has been under 24% since mid-May. It was a similar story out of Portugal as their 10-year note rallied by -36bps to finish the week at 9.40%, which is its lowest yield in over sixteen months (April 2011).

The big news in money-marketland this week was the announcement by the SEC that it would not be moving forward with any new changes to the structure of Money-Market Funds (MMF). There was great concern that the SEC would try to introduce a mandatory floating NAV and/or some kind of holdback of principal to MMFs, but at the end of the day, Chairman Schapiro did not have the necessary three votes and conceded that no changes would be forthcoming in the foreseeable future. The Financial Stability Oversight Council (FSOC) may try to amend how MMFs operate, but that remains to be seen.

This Week in Corporate Finance (08/17/12)

 A pleasant welcome to another week where the overall feeling of the market was rather positive. I can’t remember the last time we actually experienced two consecutive feel-good weeks. Shall we be optimistic and hope for a third? A continuation of slightly better than expected economic news with the absence of any horrific “black swan” events helped drive the market to a risk-on trading mentality as investors continued to move from safety to yield.

For the week, the US 2-year Treasury note yield was up to 3bps to 29bps; the 5-year note was up 9bps to 80bps (after being as high as 82bps); the 10-year note was up 15bps to 1.81% (after being as high as 1.86%, quite a jump from its recent all-time low yield of 1.44%); and the 30-year bond was up 18bps to 2.93% (after being as high as 2.96%).With this increase in Treasury yields, US mortgage rates have also moved in a similar trajectory with those levels, increasing for the third consecutive week.

If one wishes to visualize the Treasury market as a balloon, I would argue we have been experiencing a very orderly and controlled “pressure reduction” as air escapes. The “End of Times” fears that recently drove Treasury yields to all-time lows seem to be vanishing on the horizon. There are still a multitude of challenges that need to be addressed, but the recent trend gives one cause for hope.

Yields in Germany and France crept up this week. The yield on the German 30-year Bund was up 6bps to 2.30%, the 10-year Bund was up 10bps to 1.50%, and the 10-year French Oat was up 4bps to 2.13%.

The Spanish 10-year staged quite a rally as its yield dropped -40bps to 6.44%, its lowest level in over a month. Italy saw an improvement in its cost-of-funds, though not as dramatic as Spain’s, with their 10-year note yield falling by -11bps to 5.79%.

It was a quiet week in Greece (which in and of itself is a “good” thing) as its 10-year was basically unchanged at up 4bps to 24.38% and Portugal continued to enjoy sub-ten percent funding in the 10-year sector with their security rallying -18bps to fall to 9.76%.

Corporates continue to be opportunistic as they maintain elevated levels of debt issuance into a strong market. Rio Tinto led the charge this week with their $3 billion three-tranche transaction comprised of $1.25 billion of a 5-year note, $1 billion of a ten-year note, and $750 million of a 30-year bond. Royal Dutch Shell came to the market with its first bond transaction since 2010, with its own three-tier offering consisting of $1 billion each of a 5 and 10-year note, and $500 million of a 30-year note. Companies continue to extend the duration of their debt maturity profile as investors maintain an almost insatiable appetite for longer-dated securities.

It was a relatively quiet week in US equities, as the indexes all finished the week higher, albeit nothing to write home about. The Dow was up +67.25 to finish at 13,275.20, the S&P 500 was up +12.29 to close at 1,418.16 and the NASDAQ was up +55.73 to settle at 3,076.59. Two stocks in the headlines this week were Facebook and Groupon. During the week, Facebook touched a new all-time low of $19.01/share, and Groupon fell to a new all-time low of $4.51/share.

Oil continued its recent surge finishing the week up +$2.93 at $96.18/barrel, while gold was rather muted this week, down -$2.40 to settle at $1,617.30 /oz.

Will the recent streak of quiet and positive weeks continue?

Stay tuned………

This Week in Corporate Finance (08/10/12)

 This week was a pleasant change of pace as we experienced an old-fashioned, steady-as-she-goes, no-news-is-good-news kind of week. We witnessed a few hints that the worst-of-the-worst may be behind us and that our forward trajectory may be on the ascent. Both here and abroad, money moved from safety to risk, as chasing incremental yield became the focus of the week.

Here in the US, the 2-year Treasury note yield was up to 2bps to 26bps; the 5-year note was up 4bps to 70bps; the 10-year note was up 10bps to 1.66%; and the 30-year bond was up 10bps to 2.74%.

In Germany and France, there was still a bit of a flight-to-safety as the European economy looks to be fragile at best. The 30-year Bund yield was -2bps lower to 2.23%; the 10-year Bund was -3bps lower to 1.39%; and the 2-year Bund continues to float in negative territory, falling -5bps to negative -7.4bps. The French 10-year Oat was -3bps lower at 2.08%.

Spain continues to dance on the razor’s edge. This week their 10-year bond yield was up 6bps to 6.91%, dangerously close to the optically important seven percent, while Italy experienced a nice little rally this week as the yield on its 10-year bond fell -15bps to back under six percent at 5.90%.

The situations in Greece and Portugal continue to improve. The Greek 10-year note yield was -95bps lower this week to 24.36%, the lowest yield since mid-May and the Portuguese 10-year yield was lower by a similar -100bps to 9.98%, the first time the yield has been lower than ten percent since late June.

With interest rates continuing to hover near historical lows, corporations continue to bring bond-deals to the market, where there continues to be plenty of investor appetite. Altria lead the pack with their $2.8 billion two-tiered transaction consisting of $1.9 billion of a 10-year note and $900 million of a 30-year bond; PepsiCo raised $2.5 billion in a three-tranche sale comprised of $900 million of a 3-year note, $1 billion of a 5-year note, and $600 million of a 30-year bond; Community Health Systems raised $1.6 billion with a six-year security; Celgene raised $1.5 billion in a two-part deal made-up of $500 million of a 5-year note and $1 billion of a 10-year note; and Sprint issued $1.5 billion of an 8-year note. This was the busiest week for corporate bond issuance since March.

In the US, the equity indexes all finished the week higher with the Dow up over 100 points to close at 13,207.95; the NASDAQ settled back over 3K at 3,020.86; and the S&P 500 crossed back over 1,400 to finish the week at 1405.87.

Equity markets in Europe were up over one percent this week, with the FTSE closing at 5,847.11; the CAC settling at 3.435.62; and the DAX making a run at 7K, finishing the week at 6,944.56.

On the commodity front, gold was up slightly this week to finish at $1,619.70/oz, oil was up nearly $2 to finish at $93.25/barrel, and corn reached an all-time high of $8.2957/bushel.

Maybe we shall have two relatively quiet weeks in a row…….

This Week in Corporate Finance (08/03/12)

 After getting through last week’s topsy-turvy ride, who would have thought we would experience a déjà vu moment all over again, complete with marginally good (at-best) news causing the equity markets to soar and the fixed-income markets to swoon at week’s end. This week started out with hope that the Fed and/or the ECB would provide some clarity as to what they might be planning to do, or at least thinking about what they were planning on doing in regard to the current economic challenges we’re facing, both here in the US as well as in Europe. Unfortunately for the market, no news was forthcoming and treading water became the strategy for most of the week with equities and commodities off, while fixed-income saw some strength.

On Friday, the Employment report was released, and while it came in stronger than consensus (+163k v. +100k) and stronger than the previous month (+163k v. +64k), by historical standards it was a rather benign report. The market interpreted the data in quite a different way, and saw it as a green light to put risk back on. As a result, equities and commodities rose while bonds fell.

After spending most of the week in the black, US Treasuries gave up all of their gains for the week and finished basically unchanged on the week. The 2-year note was unchanged at 24bps (after being as low as 21bps); the 5-year note was up 1bp to 66bps (after being as low as 58bps); the 10-year note was up 1bp to 1.56% (after being as low as 1.46%); and the 30-year bond was up 1bp to 2.64% (after being as low as 2.54%).

It was a similar story in Europe, as the German 10-year Bund finished the week +2bps at 1.42%, while the 2-year Bund closed basically unchanged at -2bps (after falling to a new all-time low yield of -9.7bps). The French 10-year Oat still finished the week down -11bps to 2.11% (after falling to a new all-time low yield of 2.002%).

The US equity markets responded quite positively to the Employment Report. On Friday, the Dow crossed back through the 13K mark, to finish at 13,096.17, the NASDAQ is knocking on the door of 3K, settling the week at 2,967.90 and the S&P 500 is creeping up on 1,400, closing the week at 1,390.99.

European stock markets were up substantially after the job numbers. The FTSE was up over two percent to 5,787.28, the DAX was up almost four percent to 6,865.66 and the CAC was up over four percent to 3,374.19.

Gold is now back over $1,600/oz to finish the week at $1,606.00 and oil gained almost five percent to settle at $91.40/barrel.

This was another week where we saw corporate treasurers taking advantage of historically low yields and bringing deals to market. Texas Instruments raised $1.5 billion in its two-tranche transaction comprised of $750 million each of 3-year and 7-year notes. Both securities carry record low yields for corporate bonds with those tenors. The three-note note has a coupon of 45bps and the seven-year note has coupon of 1.65%. Unilever also came to market this week, raising $1 billion in its own two-part deal consisting of $450 million of a three-year note and $550 million of a five-year note. The 3-year note has a same record low coupon that TI received at 45bps.

The market will continue to look for direction as we float along in this slow-growth recovery.