You know it’s an interesting week in the market when the first order of business is a geography lesson. At least here in the US, many of us had to Wiki “Cyprus” first thing Monday morning to learn where the heck the island nation is located. It’s east of Greece and south of Turkey and it is a member state of the European Union (EU).
We spent most of the week going back-and-forth as to whether Cyprus could be another Greece. The debt and equity markets rallied and fell depending on the latest news out of Nicosia. The general feeling at week’s end was that while this was probably not going to be a major disruption to the world financial markets, if there was going to be any impact, it would be a Euro-centric issue.
Over the past two weeks, US Treasury yields were mostly lower due to reassuring words from the Fed at its most recent FOMC meeting concerning the continuation of quantitative easing and a lack of any imminent inflation threat. The US 2-year note yield was unchanged at 25bps; the 5-year note yield was down -10bps to 79bps; the 10-year note yield was down -15bps to 1.91%; and the 30-year bond yield was down -12bps to 3.13%.
In Europe, there were definitely winners, losers and a big loser. No surprise as Germany was considered a sanctuary of safety. The 30-year Bund yield fell -13bps to 2.24%; the 10-year Bund yield dropped -15bps to 1.38%; and the 2-year Bund yield deceased -5bps to finish the week at +3bps (after falling as low as negative -0.6bp). The 10-year French Oat yield fell -11bps to 2.02% (after being as low as 1.98%) and the Italian 10-year note dropped -8bps to settle at 4.52%.
The Spanish 10-year note yield sold off a bit, rising +10bps to 4.86% (after being as high as 5.08%). The Portuguese 10-year note suffered from the Cypriot fears, as its yield was up +8bps to close at 6.02% (but down from its high yield of 6.33%).
Poor Greece suffered the most this week as events in Cyprus reminded the world how weak Greece is. Their 10-year note yield rose +133bps to 11.88% (after touching 12.15%, its highest level since December).
The equity market continues to dance at all-time, near all-time or multi-year highs. The Dow touched a new all-time high of 14,546.82, up +20.87% since last June. The S&P 500 peaked at 1,563.62, so very close to its all-time high of 1,565.15, still up +23.44% since June. The NASDAQ reached 3,260.62, up +19.58% since the lows of June.
As a reality check, I always think it’s a good exercise to look back to where we were a year ago. Most pundits believe the US economy is stronger today than where we were 365 days ago. Yet while the equity market certainly shares that belief (see above), the behavior of the bond market is somewhat counterintuitive. The US 2-year note yield is -12bps lower from 37bps; the 5-year note yield is down -33bps from 1.12%; the 10-year note yield is down -37bps from 2.28%; and the 30-year bond yield is down -23bps from to 3.36%. Money has been moving into both the fixed-income and stock markets. This may be due to the belief that the US is the best place to have your money in the short-term.
Investor appetite for new-issue corporate debt issuance continues unabated. NBCUniversal led the pack with their four-tranche $4 billion offering comprised of $700 million of a 3-year FRN, $700 million of a 5-year FRN, $1.1 billion of a 5-year note and $1.5 billion of a 6-year note. Medtronic was not far behind with their three-part $3 billion transaction consisting of $1 billion of a 5-year note, $1.25 billion of a 10-year note and $750 million of a 30-year bond.
Happy Spring!
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