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 19th & 20th may have a bit more of the financial community (and media) watching than has been the case of late.
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