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!”
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 8th), the next scheduled FOMC meeting (March 19th and 20th) and quarter-end.
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