Welcome to the end of the first quarter and to a hopeful beginning of a healthy and prosperous second quarter. While we continue to experience some headwinds coming out of Europe, the mood here is one of guarded optimism. The bond market continues to hold in and the stock market keeps reaching new highs. All of the losses of the financial crisis have been recouped (as least as far as the equity indexes are concerned), and the housing and job markets continue to improve.
For the holiday-shortened week, the US 2-year note yield was down -1bp to 24bps; the 5-year note yield was down -3bps to 76bps; the 10-year note yield was down -6bps to 1.85%; and the 30-year bond yield was down -3bps to 3.10%. Even with yields dropping this week, this is the first time in two years that rates have backed up in two consecutive quarters.
Since September 30th, the 2-year note yield was up +1bp from 23bps (and we don’t expect the 2-year’s yield to vary much until the Fed changes its accommodative policy); the 5-year note yield was up +14bps from 62bps; the 10-year note yield was up +22bps from 1.63%; and the 30-year bond yield was up +28bps from 2.82%.
The US stock market continues on its recent tear. The S&P 500 finally broke through its previous historical high (1,565.15) and reached 1,570.28. The Dow touched a new all-time high of 14,578.54 and enjoyed its best first quarter since 1998 (think Will Smith’s “Getting’ Jiggy Wit it”). The NASDAQ hit a new multi-year high of 3,270.30.
Europe continues to feel the effects of the current financial crisis in Cyprus. Money continues to search out safety, with Germany being one of the prime destinations. The German 30-year Bund yield was down -2bps to 2.22%, the 10-year Bund yield fell -9bps to 1.29% (not far from its all-time low yield of 1.127%), and the 2-year Bund ended the week down -3bps to yield 0.00% (after being as low as -4.4bps). It’s always a bit scary when investors are willing to lock in a guaranteed loss rather than risk losing even a greater amount of principal. The French 10-year Oat yield was basically unchanged at +1bp to 2.03%.
The weaker sovereign credit in Europe fared poorly as concerns about Cyprus and the entire European sector weighed on investors’ minds. The Spanish 10-year note was off +20bps to end the week north of five percent at 5.06%; the Italian 10-year was weaker by +22bps to settle the week at 4.76%; the Portuguese 10-year note yield rose by +35bps to finish the week at 6.37%, and Greece fared the worst, as their 10-year note yield was off by +56bps to close the week at 12.44%.
This Friday, the US Employment report for March will be released. It is expected to show that payrolls grew by 195,000 and the Unemployment rate was unchanged at 7.7%.
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