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 6th. 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.
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