This Week in Corporate Finance (04/12/13)

This was another week where the equity markets touched new or multi-year highs, the bond market sold off a bit, and the economic outlook is lukewarm at best. Time will tell if we have finally moved to a period of determining how fast the US economy is growing, rather than asking: is the US economy growing?

For the week, the US 2-year note yield was up +1bp to 23bps; the 5-year note yield was up +2bps 69bps; the 10-year note yield was up +4bps to 1.72%; and the 30-year bond yield was up +8bps to 2.92%.

On the equity front, we are all getting ready to put on our Dow 15K caps, as the Dow hit a new all-time high of 14,887.51. The S&P 500 touched an all-time high of 1,597.35 and the NASDAQ reached another twelve-year high of 3,306.95 (think ‘N Sync’s “It’s Gonna Be Me”).

In Europe, it was a similar “risk-on” trade as money moved out of the safest investments, into those offering a bit more yield. In Germany, the 30-year Bund yield was +9bps higher, closing the week at 2.18%; the 10-year Bund yield was up +5bps to finish at 1.26%; and the 2-year Bund yield was +1bp higher, to settle at +2bps. In France, the 10-year Oat yield was +6bps higher, ending the week at 1.81%.

Some of this money moved into countries like Italy, Spain, and Portugal, as their yields all fell by a similar amount. In Italy, the 10-year note yield fell -5bps to 4.33%; in Spain, the 10-year note yield dropped -6bps to 4.69%; and in Portugal, the 10-year note yield fell -5bps to 6.31%.

The big winner of the week was Greece, as its 10-year note yield plummeted -77bps to 11.38%.

Corporate bond issuance was a bit on the light side this week at $23 billion. Leading the pack this week was CNCP with their $2 billion three-tranche deal comprised of $750 million of a 3-year note, $500 million of a 5-year note, and $750 million of a 10-year note. Dollar General was also in the market with their $1.3 billion two-part offering consisting of $400 million of a 5-year note and $900 million of a 10-year note.

In money-market land, 3-month LIBOR touched a 20-month low falling to 27.71 bps.

On the commodities front, gold actually fell into bear territory this week as its price fell to a low of $1,493.35/oz. Gold has now fallen more than twenty percent since it all-time high of $1,920.30/oz, back in September 2011. This is the first time gold has been in a bear market in twelve years.

Oil fell as low as $90.27/barrel (WTI) on fears that the global demand for energy will be less than previously expected.

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This Week in Corporate Finance (04/05/13)

The see-saw which is the US economy continued again this week as a weaker-than-expected Payrolls report put a bit of a damper on the recent positive narrative we had been witnessing. Concerns about the economy not being as robust as previously thought caused money to move in a classic “risk-off” trade and US Treasury securities were the beneficiaries at the expense of the equity market.

For the week, the US 2-year note yield was down -2bps to 22bps (as the market is pricing in no-move by the Fed until late 2015); the 5-year note yield was down -9bps to 67bps; the 10-year note yield was down -17bps to 1.68%; and the 30-year bond yield was down -26bps to 2.84%.

Prior to the Employment report, US equity indexes hit new highs earlier in the week. The Dow touched 14,684.49 before finishing the week at 14,514.50 and the S&P 500 reached 1,573.66 before closing the week at 1,546.92.

In Europe, the hangover from Cyprus continues, and investors are favoring safety over yield. The idea that the US economy may be growing at a slower pace than previously expected did nothing to improve the mood. Investors seeking safety continued to pile money into Germany and France. The German 30-year Bund yield fell -13bps to 2.09%; the 10-year Bund yield dropped -8bps to 1.21% (not far from its all-time low yield of 1.127%); and the 2-year Bund yield actually rose +3bps to end the week at +1bp. I guess the idea of locking in a guaranteed loss, lost some of its appeal this week. In France, the 10-year Oat yield fell -28bps to a new all-time low of 1.75%.

Investors were feeling more comfortable with Italian credit as the yield on their 10-year note fell by -38bps to 4.38%. It was a similar story in Spain as their 10-year note yield dropped -31bps to 4.75%. Even Greece saw their 10-year note yield fall by -29bps to 12.15%. Only in Portugal did investors take a wait-and-see approach as the yield on its 10-year note was basically unchanged at 6.36%.

Even with the uncertainty of the strength of the US economy, the issuance of corporate debt continues unabated. Wal-Mart issued a four-tranche, $5 billion offering consisting of $1 billion of a 3-year note (priced at UST +30bps, the tightest spread of any 3-year this year); $1.25 billion of a 5-year note; $1.75 billion of a 10-year note; and $1 billion of a 30-year bond. Home Depot was also in the market this week with a two-part $2 billion transaction comprised of $1 billion of a 10-year note and $1 billion of a 30-year bond.

With increased production (US crude stockpiles currently stand at 388.6 million barrels – think “Nothing Compares 2 U – by Sinead O’Connor), and the weaker Employment report, oil experienced its worst week in 6 months as West Texas crude dropped to as low as $91.91/barrel.

Gold, on the other hand, rallied after the report. After touching an almost ten-month low of $1,540.29/oz, gold rallied to close at $1,577.80/oz.

The market will be waiting for the next scheduled FOMC meeting on April 30^th and May 1^st to see if any change in Fed policy is on the horizon.