This Week in Corporate Finance (09/07/12)

 Welcome to September 2012 and a continuation of our very orderly and polite financial markets. This is quite a change from the September we experienced only four years ago back in 2008. We really had the feeling we might be off to the races before the release of the monthly Employment Report, as we were riding some reasonably good news out of Europe. The weaker than expected Employment Report (+96K versus consensus of +125K) took a bit of wind out of the market’s sails, but net-net it was positive week.

For the week, the US 2-year Treasury note yield was up 3bps to 25bps; the 5-year note was up 5bps to 64bps; the 10-year note was up 11bps to 1.66%; and the 30-year bond was up 15bps to 2.82%. The 2-year/30-year curve steepened by 12bps to now stand at 257bps.

With the news of the ECB potentially buying more sovereign debt, investors moved from ultra-safe names to add a bit more yield to their portfolios. The German 30-year Bund was off +22bps to close at 2.34% (the highest yield since early May); the 10-year Bund was +19bps higher to settle at 1.52%; and the 2-year Bund was +7bps higher to close at positive 3bps, the first time it has finished a week with a greater-than zero yield since early July. The French 10-year Oat was of by +5bps to close at 2.21%.

Spain and Italy were beneficiaries of the ECB’s largesse. Spain’s 10-year note yield fell an incredible -123bps, crashing through six percent to settle at 5.63% (its lowest close since early May). A week ago, we were worrying once again if Spain would be trending back north of seven percent, what a difference a week can make. In Italy, their 10-year note yield fell -79bps to 5.06% (its lowest level since late March).

The Greek 10-year note fell -179bps to 21.62% (its lowest level since early May). In Portugal, their 10-year yield dropped -121bps to 8.10%. One has to go back to March 2011 to find yields this low.

Will the latest action by the ECB be the mythical silver bullet that will finally put the Europe economy on the path to recovery? Only time will tell, but so far the market seems to believe so.

On the Corporate front, debt issuance was quite brisk as we came out of the normal pre-Labor Day quiet period. Adding a bit of fuel to the fire was the fact that corporate yields, on an absolute basis, touched an all-time low this week of 3.84%. A number of issuers stepped up to the plate to take advantage.

Leading the charge was WellPoint with their $3.25 billion four-tranche deal. It was comprised of $625 million of both a 3-year and 5-year note and $1 billion each of a 10-year note and a 30-year bond. Deere raised $1 billion with the issuance of a two-part transaction made up of $500 million of both a 3-year and 5-year note.

The market will be watching for news out of the Fed with the conclusion of the FOMC meeting on Wednesday. Is the US economy so weak that the Fed will announce new simulative measures to kick-start it?

Stay tuned