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.
