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.