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.