This Week in Corporate Finance (12/20/13)

This has been a truly fascinating week, and I believe it was one of the most meaningful in the past six years. For the first time since the beginning of the Financial Crisis back in August 2007, the Federal Reserve took tangible action that reinforces the narrative of a strengthening US economy.

 

The Fed, in a bit of a surprise, announced they would begin to “taper” their monthly purchases of US Treasuries and Mortgage-backed securities. Many, including yours truly, believed the Fed would wait until March, after the new Fed Chairwoman had been installed. Never discount the ability of the Fed to chart its own path.

 

The market responded to the news of the modest “tapering” much as a six year-old greets Christmas morning, with much happiness and joy. Stocks reached new all-time or multi-year highs while the response of the bond market was relatively muted.

 

The Dow hit a new all-time high of 16,287.84 (it’s now up +22.06% over the past year); the S&P 500 soared to 1,823.75 (up +26.07% over the past twelve months); and the NASDAQ reached 4,111.93 (up +34.65% over the past 365 days and its highest level since 2000).

 

The big news in the US Treasury market was the flattening of the yield curve. The yields on the short-end and the belly-of-the-curve are rising while the longer-end of the curve is dropping. Over the past two weeks, the 2-year yield is up +7bps to 37bps; the 5-year note yield is up +17bps to 1.67%; the 10-year note yield is unchanged at 2.88%; and the 30-year bond yield is actually down -9bps to 3.82%.

There are a couple of factors in play that are causing the flattening to occur. First, the market now believes the Fed is actually going to start raising interest rates a little bit sooner than it had. Given the 2-year UST yield is trading at 37bps, the market is inferring that the Fed might start increasing the Fed Funds rate in the late 2014/ early 2015 time period. Second, the belly-of-the-curve has backed-up mainly on concerns of supply. There is a large amount of 3-to-7 year debt to be issued in the near future, and given the increased optimism for the US economy, higher yields may be required for investors to participate. Third, the back-end of the UST yield is actually rallying because there is currently no threat of inflation on the horizon and because the Fed seems to be taking a gradual approach to its “tapering”.

 

On that final note, many market participants believe the Fed will reduce its purchases of Treasuries and MBS in a very gradual and orderly fashion. If the Fed were to reduce its purchases by -$10 billion per each FOMC meeting in 2014, they would complete the process by the end of 2014, and position them to start raising the Fed Fund rate as soon as late 2014/ early 2015.

 

Not to be lost in all the Fed news, but here in the United States we passed our first budget out of a divided government in 27 years (we’re talking 1986, think “West End Girls” by Pet Shop Boys). So other than battling over the debt ceiling, the budget shouldn’t be a government-closing issue for the next year or so.

Happy Holidays!

This Week in Corporate Finance (11/29/13)

As we wrap up the eleventh month of the year, the optimism continues to build for 2014. The market continues to debate when the Fed will begin to “taper”, but it’s now a matter of “when” rather than “if” in the coming months, barring some unforeseen event (a major caveat).
 

US Treasuries lost a bit of their “safe-harbor” premium and suffered their first monthly loss since August; only the 2-year note’s yield was lower. For the month, the 2-year note yield was down -3bps to 28bps; the 5-year note yield was up +11bps to 1.37% (after being as high as 1.45%); the 10-year note yield was up +26bps to 2.74% (after being as high as 2.79%); and the 30-year bond yield was up +21bps to 3.81%.

 

Over the past year, the yield curve has steepened significantly. The 2-year yield is up +3bps; the 5-year note yield is up +74bps; the 10-year note yield is up +114bps; and the 30-year bond yield is +103bps.It is interesting to note that T-bill yields are actually lower by -5 to -3bps over the same time period.

 

The stock market continues to reflect the growing optimism on the part of investors. The Dow reached a new all-time high of 16,174.51 (up +23.53% over the past year); the S&P 500 climbed to its new all-time high of 1,813.55 (up +27.53% over the past twelve months); and the NASDAQ hit a new thirteen-year high of 4,069.70 (up +34.79% over the past 365 days). In Germany, the DAX touched a new all-time high of 9,424.62 (up +27.08% since November 2012) and in Japan, the Nikkei soared to its highest close in six years at 15,727.96 (up +66.60% over the past year, its largest yearly gain since 1972).

 

As we witness this outbreak of optimism, the FX markets are taking some interesting twists and turns. In the UK, the pound rose to its highest level versus the US dollar since August 2011, at $1.6384, as the UK economy is seen as potentially growing faster than the US. On the other side of the coin, the Japanese yen fell to its lowest point versus the US dollar since late May at 102.61/USD.

 

US oil prices continue to trend lower on fundamentals. WTI touched its lowest price since July at $92.24/barrel. Supply seems to be pressuring prices lower, as it was announced that the US is producing over 8 million barrels a day for the first time since 1989 (think “Love Shack” by the B-52’s).

 

There were a couple of interesting actions involving sovereign credit risk this week. S&P upgraded the outlook for Spain from negative to stable and the Netherlands were dropped out of the exclusive “AAA-club” with their credit rating being lowered to “AA+” from “AAA”. There are now only thirteen “AAA’s” recognized by S&P (the US is “AA+”).

 

All eyes will be on the upcoming Employment report to be released Friday December 6^th and the final scheduled FOMC meeting to be held on December 17^th & 18^th.

This Week in Corporate Finance (11/15/13)

This week we continued our recent steady march towards the Dow at 16k, the S&P 500 at 2k (though honestly, we do need to break 1,800 first) and the NASDAQ at 4k. There is growing optimism that the US economy will continue to improve and at the same time, the Fed seems to be in no rush to start their “tapering” operations.
 

The Dow reached yet another all-time high this week of 15,962.66, which is up +27.12% over the past year and +143.36% since the low of March 09, 2009. The S&P 500 touched a new all-time high of 1,798.187, up +32.75% over the past twelve months and up +165.26% since its March 2009 low, and the NASDAQ hit a 13-year high of 3,985.11, up +40.39% over the past 365 days and up +213.74% since its 2009 low.

 

US Treasury yields were lower across the board this week after Fed chairman-designate Yellen provided reassuring words that the Fed wouldn’t start “tapering” immediately. Given the recent positive economic news, some parts of the market started to price in a “tapering” as soon as the next FOMC meeting on December 17^th & 18^th. Now the market is a bit more comfortable with the idea of a “tapering” that begins in March 2014.

 

For the week, the 2-year note yield was down -2bps to 29bps (after being as high as 33bps); the 5-year note yield was down -7bps to 1.34% (after being as high as 1.45%): the 10-year note yield was down -4bps to 2.70% (after being as high as 2.79%); and the 30-year bond yield was down -6bps to 3.79%. With the 2-year TSY at 29bps, the market isn’t pricing in a tightening of interest rates until mid-2015.

 

The yield curve is at its steepest slope in over two years. Historically, the market has perceived a steeper yield curve as indicative of accelerating economic activity.

 

Mortgage rates continued their recent upward trend. The average 30-year fixed-rate mortgage rose to 4.35% this week (up +100bps from a year ago) and the average 15-year fixed-rate mortgage rose to 3.35% (up +70bps from a year ago).

 

The market for new issuance of corporate bonds remains wide open. Leading the pack this week was Royal Dutch Shell (the world’s largest company as a function of revenue) with their $4 billion four-tranche offering consisting of $750 million of a two-year FRN, $1 billion of a three-year FRN, $1 billion of a three-year note and $1.25 billion of a five-year note. Volkswagon AG (Global #9 company) raised $2.15 billion with its own four-part transaction comprised of $400 million of a two-year FRN, $750 million of a three-year FRN, $500 million of a three-year note and $500 million of a five-year note.

 

Both oil and gold continued to flounder about looking for some direction, and ended the week basically unchanged at $93.73/barrel and $1,287.80/oz, respectively. Gasoline prices continue to drop, falling to near three-year lows. Some US customers have already seen prices drop below $3/gallon.

 

On the very short-end of the credit curve, 3-month LIBOR continues to trade near its all-time low yield of 23.59bps.

 

This Week in Corporate Finance (11/08/13)

The one-week delayed Employment report was the bit of icing on the birthday cake of economic good news we received this week. The Payroll report was substantially stronger than expected (+204k versus +120k consensus), and both the August and September reports were revised up (by +45k and +15k, respectively). The GDP report for the third quarter came in stronger than expected (+2.8% versus +2.0% consensus) and the Initial Claims report ticked lower to 336k.

 

The stock market responded to this burst of good news by reaching new highs or near-highs. The Dow peaked at 15,797.68 (up +22.24% over the past year), the S&P 500 continues to hover near its all-time high, currently at 1,770.54 (up +28.34% over the past twelve months), and the NASDAQ is at 3,919.23 (up +35.17% over the past 365 days) and near its 13-year high.

 

With the market now contemplating whether the Fed might accelerate the start of its “tapering” program, it wasn’t surprising to see US Treasuries take one on the chin. For the week, the 2-year note yield was unchanged at 31bps (after dropping to a low of 28bps); the 5-year note yield was up +4bps to 1.41% (after being as low as 1.30%): the 10-year note yield was up +12bps to 2.74%; and the 30-year bond yield was up +16bps to 3.85%. Mortgage rates reversed their downward trend. The average 30-year fixed-rate mortgage rose from its four-month low to 4.16% and the average 15-year fixed-rate mortgage rose to 3.27%.

 

All eyes will be on the final FOMC meeting that occurs on Tuesday December 17^th and Wednesday December 18^th, to see if the Fed hints at what its future actions may be.

 

Commodities definitely took a hit, losing a bit of their shine as safe havens for investors. Gold fell to a recent low of $1,280.50/oz, dropping -26.30% over the past year. Silver is now down -34.31% over the past twelve months. Oil touched a five-month low of $93.37/barrel for WTI. A glut of supply is trumping the increased economic activity in the US and driving prices lower. A gallon of gas in the US is near its lowest level in almost two years at an average price of $3.211/gallon.

 

Corporate CFOs are locking in funding costs before yields rise even higher as the window for debt issuance is closing as we approach the end of 2013, and the beginning of the holiday season. Philip Morris issued $2 billion via a three-tranche deal comprised of $750 million of a 5-year note, $500 million of a 10-year mote, and $750 million of a 30-year bond. Mosaic did its own three-tiered $2 billion transaction. It consisted of $900 million of a 10-year note, $500 million of a 20-year note, and $600 million of a 30-year bond.

 

Over in Europe, we received two bits of interesting news. First, in a bit of a surprise, the European Central Bank (ECB) lowered its refinancing rate by -25bps to a record low of +25bps. Only 3 out of 70 economists in one survey saw this action coming. The argument given for this reduction in yields was simply the fear of deflation in the euro-zone.

 

The other piece of news was that S&P lowered the sovereign credit rating of France from “AA+” to “AA”. France was a “AAA” credit as recently as January 2012. 

This Week in Corporate Finance (11/01/13)

The basic takeaway from this past week is that the US economy continues to grow but at a not-so-fast pace as to raise fears of inflation. The FOMC met and reinforced their recent message of a steady-as-she-goes approach to changing the current level of stimulus. It seems most likely that the Fed won’t start to “taper” until late first-quarter 2014, at the earliest.

 

The back-end of the US Treasury market sold-off a bit, while the front-end was relatively unchanged. It’s interesting to note that the T-bills (3mo, 6mo, and 12mo) are actually yielding -6bps to -8bps less than a year ago with the 2-year note yielding only +3bps more from twelve months ago.

 

Over the past week, the 2-year note yield is up +1bp to 31bps; the 5-year note yield is up +10bps to 1.37%: the 10-year note yield is up +12bps to 2.62%; and the 30-year bond yield is up +10bps to 3.69%. Mortgage rates have continued to drop. The average 30-year fixed-rate mortgage fell to a four-month low of 4.10% and the average 15-year fixed-rate mortgage dropped to 3.20%.

 

The US stock market continues to cruise along, reaching new higher highs. The Dow touched a new all-time high of 15,721.00 and is currently up +18.11% over the past year; the S&P 500 reached its new all-high of 1,755.88 and is up +23.49% over the past twelve months; and the NASDAQ soared to a new 13-year high of 3,966.71 and up 29.87% over the past 365 days.

 

Corporate issuers took advantage of the recent drop in interest rates and came to the market with a bit of gusto. Coca-Cola led the pack with its largest offering ever, a $5 billion five-tranche transaction. The structure was comprised of $500 million of a three-year FRN, $500 million of a three-year note, $1.25 billion each of a 5-year and 7-year note and $1.5 billion of a ten-year note. Altria issued $3.2 billion in a two-part offering that consisted of $1.4 billion of a ten-year note and $1.8 billion of a thirty-year bond. Proctor & Gamble sold $2 billion via a three-tranche offering made up of $500 million of a three-year FRN, $500 million of a three-year note and $1 billion of a five-year note.

 

Oil prices continued their recent 4-week slide with TWI falling thru the $95/barrel floor, dropping to as low as $94.36/barrel. This is the lowest the price of oil has been since June, and it is a reflection of growing supply and a strengthening US dollar. The price of gold dropped to a 2-week low, cotton prices touched their lowest levels since January, and coffee prices are in their longest slump since 1972 (think “American Pie” by Don McLean).

 

Talk of the ECB lowering rates, as soon as next week helped to cause a bit of a sell-off in the Euro. The Euro fell by -2.3% to a low of $1.3480 its worst five-day performance since July 6, 2012.

 

In other Central Bank news, the Reserve Bank of India (RBI) raised their repo rate for the second time in less than two month (up +25bps to 7.75%) to try and curb the recent increase in inflation. In September, wholesale prices in India were up +6.46%, while retail prices were up +9.84%.

 

I hope everyone who attended AFP’s Annual Conference in Las Vegas had a wonderful time. Please start preparing your proposals for review for our next Conference in Washington, DC in November 2014. The competition for speaking slots seems to increase every year. We tend to end up with the best and most insightful sessions via our peer review, with the attendees as the true beneficiaries.

 

This Week in Corporate Finance (07/12/13)

Welcome to the start of the second half of CY2013. I normally don’t like to call when we have started a new chapter in the ongoing saga of our economic recovery, but I’ll go out on a limb and state we have turned a significant page. The Employment report on Friday reinforced the new narrative of the US economy being able to sustain itself on an ongoing basis and for the Fed to begin to reduce the amount of monetary stimulus it has been providing in the relatively near future.  With the US economy now producing its greatest rate of job creation since 2005, markets around the world are adjusting to this new “normal”.

I think it’s safe to say the US Treasuries have been on the losing end of all this positive news regarding the US economy. Over the past three weeks, the 2-year note yield is up +12bps to 39bps (after being as high as 43bps); the 5-year note yield is up +56bps to 1.59% (after being as high as 1.60%); the 10-year note yield is up +61bps to 2.73% (its highest level since August 2011); and the 30-year bond yield is up +39bps to 3.69% (its highest level since August 2011).

A few other Treasury-related observations: T-bill yields continue to hold tight, as they are still actually lower than where they were a year ago; the jump in the UST 2-year yield implies that the Federal Reserve will start to increase its Fed Funds Rate in the second half of 2014; and with the back-up in yields, the 30-year swap spread has turned positive for the first time since August 2009.

Corporate Treasurers around the world have tapped the brakes on debt issuance of late as the spike in funding costs has caused a bit of a slowdown. Worldwide, debt issuance was at its slowest rate since December 2011 at $196.8 billion.

Commodities that had been seen as safe havens during the financial crises continue to rack up losses. Gold fell to as low as $1,206.90/oz, not far from its recent three-year low of $1,179.40/oz. Silver has traded as low $18.67/oz and has lost over -33% of its value over the past twelve months.

Crude oil has been moving in the opposite direction of late, touching a 14-month high of $103.32/barrel. Oil touched its 52-low week low of $86.29/barrel back in mid-April. The improving economic situation in the US, plus political uncertainty in Egypt has helped the recent surge in oil prices. 

Net-net, US equity prices have been trading in a relatively tight range since hitting all-time and multi-year highs back in late May. The Dow closed the week at 15,135.84 (off -2.6% from its record high), the S&P 500 settled the week at 1,631.89 (off -3.3% from its all-time high) and the NASDAQ ended the week at 3,464.11 (off -1.5% from its 12 ½ year high).

This Week in Corporate Finance (07/05/13)

Welcome to the start of the second half of CY2013. I normally don’t like to call when we have started a new chapter in the ongoing saga of our economic recovery, but I’ll go out on a limb and state we have turned a significant page. The Employment report on Friday reinforced the new narrative of the US economy being able to sustain itself on an ongoing basis and for the Fed to begin to reduce the amount of monetary stimulus it has been providing in the relatively near future.  With the US economy now producing its greatest rate of job creation since 2005, markets around the world are adjusting to this new “normal”.

I think it’s safe to say the US Treasuries have been on the losing end of all this positive news regarding the US economy. Over the past three weeks, the 2-year note yield is up +12bps to 39bps (after being as high as 43bps); the 5-year note yield is up +56bps to 1.59% (after being as high as 1.60%); the 10-year note yield is up +61bps to 2.73% (its highest level since August 2011); and the 30-year bond yield is up +39bps to 3.69% (its highest level since August 2011).

A few other Treasury-related observations: T-bill yields continue to hold tight, as they are still actually lower than where they were a year ago; the jump in the UST 2-year yield implies that the Federal Reserve will start to increase its Fed Funds Rate in the second half of 2014; and with the back-up in yields, the 30-year swap spread has turned positive for the first time since August 2009.

Corporate Treasurers around the world have tapped the brakes on debt issuance of late as the spike in funding costs has caused a bit of a slowdown. Worldwide, debt issuance was at its slowest rate since December 2011 at $196.8 billion.

Commodities that had been seen as safe havens during the financial crises continue to rack up losses. Gold fell to as low as $1,206.90/oz, not far from its recent three-year low of $1,179.40/oz. Silver has traded as low $18.67/oz and has lost over -33% of its value over the past twelve months.

Crude oil has been moving in the opposite direction of late, touching a 14-month high of $103.32/barrel. Oil touched its 52-low week low of $86.29/barrel back in mid-April. The improving economic situation in the US, plus political uncertainty in Egypt has helped the recent surge in oil prices. 

Net-net, US equity prices have been trading in a relatively tight range since hitting all-time and multi-year highs back in late May. The Dow closed the week at 15,135.84 (off -2.6% from its record high), the S&P 500 settled the week at 1,631.89 (off -3.3% from its all-time high) and the NASDAQ ended the week at 3,464.11 (off -1.5% from its 12 ½ year high).

This Week in Corporate Finance (06/14/13)

 

I believe the word “volatility”, pretty much sums up the past three weeks. Following the US equity market indexes peaking on May 22^nd, the investor community has been trying to figure out how the next chapter of the recovery story is going to play out. With the Federal Reserve mentioning that as the US economy improves, the need for stimulus will decrease, the market has been trying to contemplate going back to a more “normal” environment, where economics trumps government policy. Investors will continue to try and glean how all the markets (bond, equity, commodity, currency, and money-market) will react to less easing, which is not the same as a neutral stance, and certainly not the same as a tightening. (By the way, we needed to eliminate the word “tapering” from the lexicon).

 US Treasury yield levels have risen over the past three weeks but it hasn’t been any kind of bloodbath. During this period, the US 2-year note yield is up +2bps to 27bps; the 5-year note yield is up +14bps to 1.03%; the 10-year note yield is up +11bps to 2.12% (after being as high as 2.29%, its highest level since April 2012); and the 30-year bond yield is up +13bps to 3.30% (after being as high as 3.43%, its highest level since April 2012).

It is interesting to note how the shape of the yield curve has changed over the past twelve months. The T-bills have actually rallied -6 to -8bps, while the 30-year bond has sold-off +55bps and the 2yr/30yr spread has widened +57bps to +301bps. The market continues to price-in “no” Fed tightening until late 2015.

US mortgage rates have also increased of late. The average 30-year fixed-rate mortgage is currently at 3.98%, up from its record-low of 3.31% back in November, and the average 15-year fixed-rate mortgage is at 3.10%, up from its all-time low of 2.56%. Both yields are still at very low levels.

US equity indexes are off a bit since last month’s highs, with the Dow off -2.8% from its high, but still up +19.31% over the past twelve months; the S&P 500 is off -3.4%, but still up +22.55%; and the NASDAQ is off -2.9%, but still up +20.77%. 

In Germany, yields are higher over the past several weeks, but off from their recent highs. The 30-year Bund yield is up +7bps to 2.37% (it topped out at 2.45%), the 10-year Bund yield closed at 1.53%, up +10bps (though off from 1.66%), and the 2-year Bund yield is +12bps higher at +13bps (still off from +24bps). The French 10-year Oat yield is up +15bps to 2.09% (2.28% was the recent high).

It was a similar story in Italy and Spain. The Italian 10-year note yield was up +14bps to settle at 4.28% (down from 4.47%) and the Spanish 10-year note yield finished the week at 4.59%, up +17bps but still lower than its high of 4.76%.

Portugal and Greece were the recent dogs of sovereign debt. The Portuguese 10-year note yield was up +77bps to close at 6.30% (after touching 6.65%) and the Greek 10-year note yield was up +107bps to settle at 9.93% (after soaring as high as 10.80%).

Commodity prices have been a bit choppy of late. Oil finished the week near its 90-day high at $97.80/barrel, while natural gas, on the other hand, is trading at a multi-month low of $3.753. Silver is trading at a near 33-month low of $22/oz and cooper is at a one-month low of $3.20.

The corporate debt market continues to be active even with the recent back-up in yields. EMC led the way with their $5.5 billion three-tranche transaction, their first offering since 2007. The deal was comprised of $2.5 billion of 5-year notes, $2 billion of 7-year notes, and $1 billion of 10-year notes. Pfizer was in the market with its first US-dollar denominated deal since 2009. It was a $4 billion five-part transaction consisting of $750 million of a 3-year note, $1 billion of a 5-year note, $500 million of a 5-year FRN, $1 billion of a 10-year note, and $750 million of a 30-year bond.

The long-awaited SEC proposals for structural changes to the money-market industry were recently released. Issues addressing the introduction of a floating NAV for Prime funds and the ability to suspend redemptions were introduced for public comment.

The upcoming scheduled FOMC meeting on June 18^th and 19^th will provide the Fed with the opportunity to clarify its recent comments on the idea and timing of a reduction of bond purchases. The market will be keenly focused on the press release following the end of the meeting.  

 

This Week in Corporate Finance (04/12/13)

This was another week where the equity markets touched new or multi-year highs, the bond market sold off a bit, and the economic outlook is lukewarm at best. Time will tell if we have finally moved to a period of determining how fast the US economy is growing, rather than asking: is the US economy growing?

For the week, the US 2-year note yield was up +1bp to 23bps; the 5-year note yield was up +2bps 69bps; the 10-year note yield was up +4bps to 1.72%; and the 30-year bond yield was up +8bps to 2.92%.

On the equity front, we are all getting ready to put on our Dow 15K caps, as the Dow hit a new all-time high of 14,887.51. The S&P 500 touched an all-time high of 1,597.35 and the NASDAQ reached another twelve-year high of 3,306.95 (think ‘N Sync’s “It’s Gonna Be Me”).

In Europe, it was a similar “risk-on” trade as money moved out of the safest investments, into those offering a bit more yield. In Germany, the 30-year Bund yield was +9bps higher, closing the week at 2.18%; the 10-year Bund yield was up +5bps to finish at 1.26%; and the 2-year Bund yield was +1bp higher, to settle at +2bps. In France, the 10-year Oat yield was +6bps higher, ending the week at 1.81%.

Some of this money moved into countries like Italy, Spain, and Portugal, as their yields all fell by a similar amount. In Italy, the 10-year note yield fell -5bps to 4.33%; in Spain, the 10-year note yield dropped -6bps to 4.69%; and in Portugal, the 10-year note yield fell -5bps to 6.31%.

The big winner of the week was Greece, as its 10-year note yield plummeted -77bps to 11.38%.

Corporate bond issuance was a bit on the light side this week at $23 billion. Leading the pack this week was CNCP with their $2 billion three-tranche deal comprised of $750 million of a 3-year note, $500 million of a 5-year note, and $750 million of a 10-year note. Dollar General was also in the market with their $1.3 billion two-part offering consisting of $400 million of a 5-year note and $900 million of a 10-year note.

In money-market land, 3-month LIBOR touched a 20-month low falling to 27.71 bps.

On the commodities front, gold actually fell into bear territory this week as its price fell to a low of $1,493.35/oz. Gold has now fallen more than twenty percent since it all-time high of $1,920.30/oz, back in September 2011. This is the first time gold has been in a bear market in twelve years.

Oil fell as low as $90.27/barrel (WTI) on fears that the global demand for energy will be less than previously expected.

.

This Week in Corporate Finance (04/05/13)

The see-saw which is the US economy continued again this week as a weaker-than-expected Payrolls report put a bit of a damper on the recent positive narrative we had been witnessing. Concerns about the economy not being as robust as previously thought caused money to move in a classic “risk-off” trade and US Treasury securities were the beneficiaries at the expense of the equity market.

For the week, the US 2-year note yield was down -2bps to 22bps (as the market is pricing in no-move by the Fed until late 2015); the 5-year note yield was down -9bps to 67bps; the 10-year note yield was down -17bps to 1.68%; and the 30-year bond yield was down -26bps to 2.84%.

Prior to the Employment report, US equity indexes hit new highs earlier in the week. The Dow touched 14,684.49 before finishing the week at 14,514.50 and the S&P 500 reached 1,573.66 before closing the week at 1,546.92.

In Europe, the hangover from Cyprus continues, and investors are favoring safety over yield. The idea that the US economy may be growing at a slower pace than previously expected did nothing to improve the mood. Investors seeking safety continued to pile money into Germany and France. The German 30-year Bund yield fell -13bps to 2.09%; the 10-year Bund yield dropped -8bps to 1.21% (not far from its all-time low yield of 1.127%); and the 2-year Bund yield actually rose +3bps to end the week at +1bp. I guess the idea of locking in a guaranteed loss, lost some of its appeal this week. In France, the 10-year Oat yield fell -28bps to a new all-time low of 1.75%.

Investors were feeling more comfortable with Italian credit as the yield on their 10-year note fell by -38bps to 4.38%. It was a similar story in Spain as their 10-year note yield dropped -31bps to 4.75%. Even Greece saw their 10-year note yield fall by -29bps to 12.15%. Only in Portugal did investors take a wait-and-see approach as the yield on its 10-year note was basically unchanged at 6.36%.

Even with the uncertainty of the strength of the US economy, the issuance of corporate debt continues unabated. Wal-Mart issued a four-tranche, $5 billion offering consisting of $1 billion of a 3-year note (priced at UST +30bps, the tightest spread of any 3-year this year); $1.25 billion of a 5-year note; $1.75 billion of a 10-year note; and $1 billion of a 30-year bond. Home Depot was also in the market this week with a two-part $2 billion transaction comprised of $1 billion of a 10-year note and $1 billion of a 30-year bond.

With increased production (US crude stockpiles currently stand at 388.6 million barrels – think “Nothing Compares 2 U – by Sinead O’Connor), and the weaker Employment report, oil experienced its worst week in 6 months as West Texas crude dropped to as low as $91.91/barrel.

Gold, on the other hand, rallied after the report. After touching an almost ten-month low of $1,540.29/oz, gold rallied to close at $1,577.80/oz.

The market will be waiting for the next scheduled FOMC meeting on April 30^th and May 1^st to see if any change in Fed policy is on the horizon.

This Week in Corporate Finance (03/29/13)

Welcome to the end of the first quarter and to a hopeful beginning of a healthy and prosperous second quarter. While we continue to experience some headwinds coming out of Europe, the mood here is one of guarded optimism. The bond market continues to hold in and the stock market keeps reaching new highs. All of the losses of the financial crisis have been recouped (as least as far as the equity indexes are concerned), and the housing and job markets continue to improve.

For the holiday-shortened week, the US 2-year note yield was down -1bp to 24bps; the 5-year note yield was down -3bps to 76bps; the 10-year note yield was down -6bps to 1.85%; and the 30-year bond yield was down -3bps to 3.10%. Even with yields dropping this week, this is the first time in two years that rates have backed up in two consecutive quarters.

Since September 30^th, the 2-year note yield was up +1bp from 23bps (and we don’t expect the 2-year’s yield to vary much until the Fed changes its accommodative policy); the 5-year note yield was up +14bps from 62bps; the 10-year note yield was up +22bps from 1.63%; and the 30-year bond yield was up +28bps from 2.82%.

The US stock market continues on its recent tear. The S&P 500 finally broke through its previous historical high (1,565.15) and reached 1,570.28. The Dow touched a new all-time high of 14,578.54 and enjoyed its best first quarter since 1998 (think Will Smith’s “Getting’ Jiggy Wit it”). The NASDAQ hit a new multi-year high of 3,270.30.

Europe continues to feel the effects of the current financial crisis in Cyprus. Money continues to search out safety, with Germany being one of the prime destinations. The German 30-year Bund yield was down -2bps to 2.22%, the 10-year Bund yield fell -9bps to 1.29% (not far from its all-time low yield of 1.127%), and the 2-year Bund ended the week down -3bps to yield 0.00% (after being as low as -4.4bps). It’s always a bit scary when investors are willing to lock in a guaranteed loss rather than risk losing even a greater amount of principal. The French 10-year Oat yield was basically unchanged at +1bp to 2.03%.

The weaker sovereign credit in Europe fared poorly as concerns about Cyprus and the entire European sector weighed on investors’ minds. The Spanish 10-year note was off +20bps to end the week north of five percent at 5.06%; the Italian 10-year was weaker by +22bps to settle the week at 4.76%; the Portuguese 10-year note yield rose by +35bps to finish the week at 6.37%, and Greece fared the worst, as their 10-year note yield was off by +56bps to close the week at 12.44%.

This Friday, the US Employment report for March will be released. It is expected to show that payrolls grew by 195,000 and the Unemployment rate was unchanged at 7.7%.

This Week in Corporate Finance (03/22/13)

You know it’s an interesting week in the market when the first order of business is a geography lesson. At least here in the US, many of us had to Wiki “Cyprus” first thing Monday morning to learn where the heck the island nation is located. It’s east of Greece and south of Turkey and it is a member state of the European Union (EU).

We spent most of the week going back-and-forth as to whether Cyprus could be another Greece. The debt and equity markets rallied and fell depending on the latest news out of Nicosia. The general feeling at week’s end was that while this was probably not going to be a major disruption to the world financial markets, if there was going to be any impact, it would be a Euro-centric issue.

Over the past two weeks, US Treasury yields were mostly lower due to reassuring words from the Fed at its most recent FOMC meeting concerning the continuation of quantitative easing and a lack of any imminent inflation threat. The US 2-year note yield was unchanged at 25bps; the 5-year note yield was down -10bps to 79bps; the 10-year note yield was down -15bps to 1.91%; and the 30-year bond yield was down -12bps to 3.13%.

In Europe, there were definitely winners, losers and a big loser. No surprise as Germany was considered a sanctuary of safety. The 30-year Bund yield fell -13bps to 2.24%; the 10-year Bund yield dropped -15bps to 1.38%; and the 2-year Bund yield deceased -5bps to finish the week at +3bps (after falling as low as negative -0.6bp). The 10-year French Oat yield fell -11bps to 2.02% (after being as low as 1.98%) and the Italian 10-year note dropped -8bps to settle at 4.52%.

The Spanish 10-year note yield sold off a bit, rising +10bps to 4.86% (after being as high as 5.08%). The Portuguese 10-year note suffered from the Cypriot fears, as its yield was up +8bps to close at 6.02% (but down from its high yield of 6.33%).

Poor Greece suffered the most this week as events in Cyprus reminded the world how weak Greece is. Their 10-year note yield rose +133bps to 11.88% (after touching 12.15%, its highest level since December).

The equity market continues to dance at all-time, near all-time or multi-year highs. The Dow touched a new all-time high of 14,546.82, up +20.87% since last June. The S&P 500 peaked at 1,563.62, so very close to its all-time high of 1,565.15, still up +23.44% since June. The NASDAQ reached 3,260.62, up +19.58% since the lows of June.

As a reality check, I always think it’s a good exercise to look back to where we were a year ago. Most pundits believe the US economy is stronger today than where we were 365 days ago. Yet while the equity market certainly shares that belief (see above), the behavior of the bond market is somewhat counterintuitive. The US 2-year note yield is -12bps lower from 37bps; the 5-year note yield is down -33bps from 1.12%; the 10-year note yield is down -37bps from 2.28%; and the 30-year bond yield is down -23bps from to 3.36%. Money has been moving into both the fixed-income and stock markets. This may be due to the belief that the US is the best place to have your money in the short-term.

Investor appetite for new-issue corporate debt issuance continues unabated. NBCUniversal led the pack with their four-tranche $4 billion offering comprised of $700 million of a 3-year FRN, $700 million of a 5-year FRN, $1.1 billion of a 5-year note and $1.5 billion of a 6-year note. Medtronic was not far behind with their three-part $3 billion transaction consisting of $1 billion of a 5-year note, $1.25 billion of a 10-year note and $750 million of a 30-year bond.

Happy Spring!

This Week in Corporate Finance (03/08/13)

As the employment report was released on Friday morning, all I could hear on the soundtrack in my brain was Lou Levin singing “Happy Days are Here Again”.  For those looking for signs that the US economy is finally pulling out of its morass, this was probably the best week in at least four or five years.

The Payroll number came in at an above-consensus +236k (versus +171k expected) and the Unemployment rate fell lower than expected to 7.7% (7.8% was the consensus). With the rate now at its lowest point since December 2008, and the strong gain in the jobs number, it was definitely “risk-on”. The stock market hit new higher highs and the US Treasury market sold-off as money that had been on the sidelines came rushing back in.

The S&P climbed as high as 1,552.48 tantalizingly close to its all-time high of 1,565.15, reached back in October 2007. The Dow broke through the 14,400 barrier to peak at 14,413.17, a new all-time high. We are now only about four percent away from breaching Dow 15K. The NASDAQ also touched a new multi-year high of 3,248.70.

On the flipside, the US 2-year note yield was up +2bps to 25bps (after being as high as 26bps); the 5-year note yield was up +14bps to 89bps (after being as high as 91bps); the 10-year note yield was up +20bps to 2.06% (after being as high as 2.08%, its highest level since April 5, 2012); and the 30-year bond yield was up +19bps to 3.25% (after being as high as 3.28%).

It was a similar story in Europe as investors were more interested in yield than principal protection. The safety offered by German Bunds lost a bit of its shine due to the positive developments in America. The 30-year Bund was off +10bps to finish at 2.37%, the 10-year Bund was weaker by +12bps to close at 1.53%, and the 2-year Bund yield rose +6bps to settle at +9bps. All was relatively calm in France as its 10-year Oat was basically unchanged at +2bps, ending the week at 2.13%.

Italy witnessed a small relief rally in its 10-year bond as the yield dropped -19bps to 4.60%, but is still elevated from its recent low yield of 4.07%. Spain saw a healthy rally in its credit as its 10-year note yield pushed through the 5% barrier and dropped -34bps to 4.76%, its lowest level since November 2010.

Similar to Spain, Portugal watched as money poured into its name as investors felt more comfortable moving down the credit-curve in search of more yield. The Portuguese 10-year note fell -40bps to close at 5.94%, breaking through the 6% barrier to its lowest yield since October 2010. Money also moved into Greek securities as their 10-year noted rallied -49bps to drop to 10.55%.

Corporate debt issuance slowed a bit this week, though deals continue to come down the pike. Burlington Northern was in the market with their $1.5 billion two-tranche offering comprised of $700 million of a 10-year note and $800 million of a 30-year bond. ILFC was also in the market with their $1.25 billion two-part transaction consisting of $750 million of a 5-year note and $500 million of an 8-year note.

Given all the recent positive news, market participants will be watching closely for any hints that the Fed is considering slowing down their stimulus activity. The scheduled FOMC meeting on March 19^th & 20^th may have a bit more of the financial community (and media) watching than has been the case of late.

This Week in Corporate Finance (03/01/13)

Welcome to March. Normally this is the time of year where most market participants in the US are brushing up on their bracketology skills in preparation of March Madness. Instead we are faced with a situation worthy of a Rod Sterling voiceover, “You're traveling through another dimension -- a dimension not only of sight and sound but of mind. A journey into a wondrous land whose boundaries are that of imagination. That's a signpost up ahead: your next stop: the Sequester Zone!”

Over the past two weeks, the market has been a bit bipolar, optimism about the growth potential for the US economy (reflected in the equity market) versus concern about the lack of growth potential in the US and world economies (reflected in the bond market).

Here in the US, we witnessed multi-year highs for a number of stock indexes. The Dow touched 14,149.15, its highest level since October 2007, and only 15 points away from its all-time high. The S&P 500 reached 1,530.94, also its highest level since October 2007, and also only 15 points from its all-time high. The NASDAQ rose as high as 3,213.60, its highest level in over 12 years, November 2000, but still quite a way off from its high of 5,132.52 reached in March 2000. The hope that the US economy is poised for a healthy economic expansion is one of the underpinnings for the recent rise in the stock market.

On the flipside, fear that the US and parts of the rest of the world (ROW) are slowing down, caused money to move into the safest investments. The US 2-year note yield was down -3bps to 23bps; the 5-year note yield was down -10bps to 75bps; the 10-year note yield was down -15bps to 1.85% (after being as low as 1.84%); and the 30-year bond yield was down -12bps to 3.06% (after being as low as 3.04%).

The story in Europe continues to be one of economic weakness and uncertainty. When there is uncertainty, we often witness a flight-to-safety. In Germany, the 30-year Bund yield has dropped -15bps to 2.27%; the 10-year Bund yield has fallen -24bps to 1.41%; and the 2-year Bund yield has dropped -16bps to +3bps. In France, the 10-year Oat yield fell -17bps to 2.11%. Spain has also rallied of late, with its 10-year note yield falling -9bps to 5.10%.

In Italy, the country is suffering from the twin effects of an election and a resignation. On the political front, Italy held an election and nobody won (rings a little familiar to the US, as in 2000). Also not helping the country’s psychological state, Benedict XVI became the first pope to resign since Gregory XII in 1415 (ending the Western Schism). The 10-year Italian note yield rose as high as 4.96% (the highest level since November), before closing the week at 4.79%, +41bps.

Portugal has suffered a bit of late as its 10-year note has sold-off, with its yield rising +19bps to 6.38%. Greece was also weaker, with its 10-year note yield rising +13bps to 11.04%.
The currencies in Europe are also weaker. The Euro fell through $1.30 for the first time in two months, falling to a low of $1.2973. The British pound fell to its lowest level versus the US dollar since July 2010, dropping to $1.5010 (of course, after I just visited).

On the corporate-debt issuance front, we just experienced our busiest week since late January. Freeport-McMoRan lead the way with their $6.5 billion four-tranche deal consisting of $1.5 billion of a 5-year note, $1 billion of a 7-year note, $2 billion of a 10-year note and $2 billion of a 30-year bond. PepsiCo raised $2.5 billion with their offering comprised of $625 million of a 3-year FRN, $625 million of a 3-year note and $1.25 billion of a 10-year note. Coca-Cola was also in the market with its own $2.5 billion transaction, made up of $500 million of a 2-year FRN, $1.25 billion of a 5-year note and $750 million of a 10-year note. In addition, Whirlpool raised $500 million with $250 million of a 10-year note and $250 million of a 30-year bond, their first 30-year issuance since 1986 (think “Life in a Northern Town” by the Dream Academy).

In additional to watching for developments coming out of D.C. and Europe, the market will be focused on the upcoming Employment report (March 8^th), the next scheduled FOMC meeting (March 19^th and 20^th) and quarter-end.

This Week in Corporate Finance (02/08/13)

The world has been a relatively stable place for the past two weeks, quite a change from the environment of most of the past five years. The stock market has grown comfortable at its current lofty heights, while at the same time, we’ve witnessed no mass exodus out of the fixed-income market. We seem to be enjoying a bit of a Goldilocks moment, how long it remains has yet to be seen.

While we have seen the US Treasury market bounce around a bit, net-net, it’s been relatively calm. The US 2-year note yield was down -2bps to 25bps; the 5-year note yield was unchanged at 84bps; the 10-year note yield was up +2bps to 1.96%; and the 30-year bond yield was up +5bps to 3.17%. The market seems to be relatively comfortable with bond yields in this ballpark, a reflection of a US economy growing around +2.5%, with little to no inflation. The front-end of the curve is anchored to the Fed, with the belief that interest rates will remain relatively low for the next two years. As long as there is no perceived risk of inflation, the level of absolute rates should remain relatively stable.

The US Treasury announced that it plans to incorporate floating-rate debt into its regular funding mix. The Treasury expects to auction its first floating-rate note (FRN) within the next twelve months.

In Europe, the German and French markets were also relatively stable. The 30-year German Bund yield is -3bps lower at 2.38%, the 10-year German Bund yield is also -3bps lower at 1.61%, and the 2-year German Bund has rallied a bit more, down -7bps to +18bps. The French 10-year Oat yield was basically unchanged, up +2 bps to 2.24%.

The Italian 10-year note yield has backed up a bit, as investors felt that maybe it had dropped too far too quickly. After falling -264 bps between late July and late January (from 6.71% to 4.07%) the yield has risen +48bps to 4.55%, still quite an improvement since the summer. It was a similar story for Spain, though not to the same degree. The Spanish 10-year note yield rose +19bps to 5.36%. Its yield peaked back in July at 7.75%.

Concerns about Portugal and Greece flared again over the past two weeks, but nowhere near the same intensity we witnessed last year. The Portuguese 10-year note yield backed up +42bps to 6.55% and the Greek 10-year note yield rose +62bps to finish the week at 10.93%.

In US equities, we saw the major indexes touch multi-year highs and then maintain their recent gains. The Dow reached a new multi-year high of 14,022.62 on Friday, while the NASDAQ flirted with a new twelve-year high of 3,197 while the S&P 500 rose up to 1,518.31.

In money-market land, LIBOR was in the news for two reasons this week. First, the 3-month LIBOR rate fell to its lowest level since August 15, 2011, at 29.2bps; and second, another bank paid a substantial fine related to the manipulation of LIBOR. This time it was RBS paying a fine of $612 million for its part in this ongoing scandal.

After having the busiest year on record for corporate debt issuance ($3.96 trillion), we got 2013 started with a bang by having the busiest January on record ($412.3 billion). Things did not slow down at all as February began. Virgin Media raised $3.65 billion, Imperial Tobacco and AT&T each raised $2.25 billion, and IBM raised $2 billion.

This Week in Corporate Finance (01/25/13)

So whether one was in New York, London (where I’ll be this week), or Davos, the overwhelming emotion of the week was definitely one of optimism. The stock market continues to rally, the economic news has been pleasant, and the United States government’s desire to commit political and economic hari-kari seems to have been minimized (at least for now).

The S&P 500 crossed the 1,500 level to reach its highest level since December 2007 at 1,502.96. The S&P is on its longest winning streak since November 2004.  The Dow is now at its highest point since December 2007 at 13,895.98, and is less than two percent away from its all-time high of 14,164 reached back in October 2007. The NASDAQ is also up in the month of January but not back to its multi-year high of 3,196.93 reached back in September. The price drop of Apple stock has been a constraint on the NASDAQ.

It’s interesting to note that even with the US stock market at its recent highs, from a historical earnings yield perspective, stocks still look quite attractive. Currently the earnings yield spread between the S&P 500 and the UST 10-year note is approximately 475bps. Back in the summer of 2007 this spread, also known as the equity risk premium (ERP), was only 70bps, and back in March 2000 the ERP was actually -280 bps.

This was definitely a “risk-on” week, as money moved from safety to yield. The US 2-year note yield was up +2bps to 27bps; the 5-year note yield was up +8bps to 84bps; the 10-year note yield was up +9bps to 1.94%; and the 30-year bond yield was up +8bps to 3.12%.

Another source of fuel for the current stock rally may be bank deposits. Since expiration of the TAG program, in the week ending January 9^th, $114.1 billion in deposits left the banking system, the fastest drop in deposits since 9/11. With the loss unlimited insurance, those deposits earning no-interest are even more unattractive.

The corporate bond market was active, but it couldn’t maintain last week’s record pace. With corporate bond yields falling to a record low this week of 3.526%, PNC led domestic issuers with their $1.75 billion three-tranche transaction comprised of $750 million of a 3-year note, $250 million of a three-year FRN, and $750 million of a 10-year note.

All eyes will be on the Fed this week as the first scheduled FOMC meeting occurs on Tuesday and Wednesday. The Market will be scouring the Fed’s comments, trying to divine when the Fed might remove the stimulus punchbowl.

Given the improvement in the most recent Jobless Claims reports (currently at a five-year low), the impact of Employment report scheduled for release this Friday may carry greater weight.

This Week in Corporate Finance (01/18/13)

Maybe this week will be a trend-setter for the rest of 2013, the stock market touching new 5-year highs while the bond market is relatively quiet. To reference our previous Fed Chairman, maybe we have found a Goldilocks moment. The economic and earnings news was rather pleasant and the market reacted accordingly.

For the week, the US 2-year note yield was unchanged at 25bps; the 5-year note yield was down -3bps to 76bps; the 10-year note yield was down -5bps to 1.85%; and the 30-year bond yield was down -4bps to 3.04%.

It was an interesting week in Germany as their yield curve flattened significantly. The 30-year Bund yield rallied -13bps to drop to 2.32%, their 10-year Bund yield was basically unchanged at -2bps to 1.56%, and their 2-year Bund sold-off by +5bps, rising to +18bps, its highest level since April. It was a similar story in France, with their 30-year Oat yield down -11bps to 3.07%, their 10-year Oat yield down -2bps to 2.13%, and their 2-year Oat yield up +7bps to +23bps. There is a general feeling that the economies of these two countries will grow, albeit at a non-inflationary pace.

Net-net, the Italian 10-year note took a bit of a breather this week, with its yield increasing by +4bps to 4.17%. After its recent tear from a high yield of 6.60% back in July, investors are questioning how much lower rates can fall from this point on. Can the yield drop below four percent, last seen in November 2010? The Spanish 10-year note sold-off with its yield jumping +19bps to 5.08%, after falling as low as 4.84% last week. Similar to Italy, the Spanish 10-year has been on a tear, falling from 7.75% back in July.

The Portuguese 10-year note continued its winning ways of late, with its yield rallying another -9bps to 6.12%, its lowest level since December 2010. Quite a drop from its 18.29% level of January 2012. The Greek 10-year yield fell -72bps to 11.03%, close to its recent low yield.

In the equity markets, both the Dow and the S&P 500 touched new 5-year highs (think Kanye West’s “Good Life”). The Dow rallied to close at 13,649.70, while the S&P reached 1,485.98. Year-to-date, both indexes are now up over four percent.

Last week ended up being the busiest week ever for corporate bond issuance as companies brought over $126 billion to market. Quite an impressive start to 2013, after 2012’s record breaking $3.95 trillion. This week was led by ConAgra’s four-tranche $3.98 billion transaction comprised of $750 million of a 3-year note, $1 billion of a 5-year note, $1.225 billion of a note, and $1 billion of a 30-year bond. Jefferies was also in the market with a two-part $1 billion offering consisting of $600 million of a 10-year note and $400 million of a 30-year bond. 

The Commercial Paper (CP) market continues to grow. This was the twelfth-consecutive week the CP market increased, the longest streak since July 2007. The CP market is now at its greatest outstanding at $1.133 trillion since August 2011 ($1.147 trillion).

Of note this week was the passing of Robert Citron, the former treasurer of Orange County, California. Those of us in the Agency, Derivatives, or Money Markets back in 1994, will remember Bob as someone whose interest rate bets (which lost about $1.7 billion) helped to drive Orange County into what was until 2011, the biggest county bankruptcy in US history.

This Week in Corporate Finance (01/04/13)

 It was a rather exciting way to start off a new year; a congressional “patch” to get us over the “Fiscal Cliff” (at least in the short-term), the Fed raising the specter of the end of governmental bond-buying in order to stimulate the economy, and an Employment report reinforcing the narrative of a growing (albeit slowly) economy. If one is a believer that the two overpowering emotions in investing are greed and fear, then this was a week to get out of the way of those looking for yield, as the rout was on for those assets regarded as safe havens.

US Treasuries were one of those investments that investors used to provide capital in order to purchase higher-yielding assets as this was definitely a “risk-on” week. For the week, the US 2-year note yield was up +1bp to 26bps (after being as cheap as 29bps); the 5-year note yield was up +10bps to 81bps (after being as cheap as 85bps); the 10-year note yield was up +20bps to 1.90% (after being as cheap as 1.97%, suffering through its worst backup in yield since March and touching levels not seen since April); and the 30-year bond yield was up +23bps to 3.10% (after being as cheap as 3.18%, its highest level since April).

There was quite a sell-off in German Bunds as well, with the 30-year Bund yield off +25bps to close the week at 2.42%, the 10-year Bund yield weaker by +23bps to finish the week at 1.54%, and the 2-year Bund yield higher by +9bps to return to positive territory at +8bps. To a lesser degree the 10-year French Oat sold-off, up +14bps to settle the week at 2.14%.

One of the places where one could pick up a bit of yield this week was in second-tier European sovereign credit. The Italian 10-year note yield dropped -23bps to 4.27%, its lowest level since November 2011.  The Spanish 10-year note yield was down -20bps to 5.06%, its lowest level since March.

The 10-year Portuguese note plunged through the 7% level this week, with its yield falling -69bps to 6.32%, its lowest level in over two years, going back to December 2010. The Greek 10-year note yield fell -65bps to 11.25%, its lowest level since February 2011.

US equity markets rallied nicely with this recent bout of optimism. The Dow was up nearly +500 points to close at 13,435, the NASDAQ was up +141 points to settle over 3,100 at 3,101.66, and the S&P 500 was up +64 points to finish at 1,466.47, its highest close since December 2007.

Money-market funds (MMFs) grew again this week, with their assets increasing by +$37.78 billion to $2.705 trillion. This is the first time the MMFs have been larger than $2.7 trillion since January 2011. MMFs have grown by $158.2 billion since October 31^st which may have been influenced by the expiration of the TAG program. We will continue to monitor the flow of funds.

The next scheduled FOMC meeting is later this month, January 29^th and 30^th, and for the first time in quite some time, the market may be paying particular attention.