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………
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