This Week in Corporate Finance (08/31/12)

With the dog days of August finally behind us, we enter into the home stretch of 2012. It will probably be an exciting last four months of the year, so market participants should be prepared for an interesting ride.

This was a classic late-summer news-lite week, with all eyes focused on Chairman Bernanke’s annual speech in beautiful Jackson Hole, Wyoming (one of my most favorite places in the world). The Chairman reaffirmed the Federal Reserve’s commitment to kick-start the economy through another round of qualitative easing (QE3) if circumstances require such action. The general tone of this announcement was expected by the markets, and they rewarded the Chairman with a bit of a rally in both the fixed-income as well as the equity markets.

For the week, the US 2-year Treasury note yield was down 5bps to 22bps; the 5-year note was down 12bps to 59bps; the 10-year note was down 14bps to 1.55%; and the 30-year bond was down 13bps 2.67%. We now have talk of interest rates staying in this ultra-low environment until 2015. That was part of the reason the 2-year note rallied as much as it did.

It was a relatively quiet week in Europe. In Germany, the 30-year Bund yield was down -4bps to 2.12%; the 10-year Bund was lower by -3bps to 1.33%; and the 2-year Bund continues its travels in negative yield-land, down another -3bps to -4bps. The French 10-year Oat actually sold-off a bit, giving up 10bps to finish the week at 2.16%.

Spain had a slightly rough week. The yield on its 10-year note was higher by 44bps, driving its yield up to 6.86%, and raising concerns as it approaches the seven percent level, yet again. The Italian 10-year note was also off the week, but not to the same magnitude. It was higher by 14bps to settle at 5.85%, making investors nervous, as it floats near the six percent level.

Greece continues to perform as its 10-year note rallied another -56bps this week to close at 23.41%. The yield on the Greek 10-year has been dropping steadily since its recent peak back in late May. In was rather quiet in Portugal, as their 10-year rallied, but only by -9bps, to close the week at 9.31%.

There was a fair amount of M&A activity this week. Companies may be feeling the pressure to start deploying some of that $2 trillion sitting on their balance sheets. M&T purchased Hudson City for $3.7 billion, Daikin bought Goodman for $3.7 billion, and Hertz acquired Thrifty for $2.6 billion.

In South American this week, Brazil lowered it Selic rate for the ninth time in this easing cycle that started back in August 2011. The rate was lowered by -50bps from 8.00% to 7.50%, a new all-time low level.

As we look into September, the market will be focused on both the upcoming Employment Report, as well as the next FOMC meeting scheduled for September 12^th – 13^th.