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.
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