It is interesting to note how
the shape of the yield curve has changed over the past twelve months. The
T-bills have actually rallied -6 to -8bps, while the 30-year bond has sold-off
+55bps and the 2yr/30yr spread has widened +57bps to +301bps. The market
continues to price-in “no” Fed tightening until late 2015.
US mortgage rates have also
increased of late. The average 30-year fixed-rate mortgage is currently at
3.98%, up from its record-low of 3.31% back in November, and the average
15-year fixed-rate mortgage is at 3.10%, up from its all-time low of 2.56%.
Both yields are still at very low levels.
US equity indexes are off a bit
since last month’s highs, with the Dow off -2.8% from its high, but still up
+19.31% over the past twelve months; the S&P 500 is off -3.4%, but still up
+22.55%; and the NASDAQ is off -2.9%, but still up +20.77%.
In Germany, yields are higher
over the past several weeks, but off from their recent highs. The 30-year Bund
yield is up +7bps to 2.37% (it topped out at 2.45%), the 10-year Bund yield
closed at 1.53%, up +10bps (though off from 1.66%), and the 2-year Bund yield
is +12bps higher at +13bps (still off from +24bps). The French 10-year Oat
yield is up +15bps to 2.09% (2.28% was the recent high).
It was a similar story in Italy
and Spain. The Italian 10-year note yield was up +14bps to settle at 4.28%
(down from 4.47%) and the Spanish 10-year note yield finished the week at
4.59%, up +17bps but still lower than its high of 4.76%.
Portugal and Greece were the
recent dogs of sovereign debt. The Portuguese 10-year note yield was up +77bps
to close at 6.30% (after touching 6.65%) and the Greek 10-year note yield was
up +107bps to settle at 9.93% (after soaring as high as 10.80%).
Commodity prices have been a
bit choppy of late. Oil finished the week near its 90-day high at $97.80/barrel,
while natural gas, on the other hand, is trading at a multi-month low of
$3.753. Silver is trading at a near 33-month low of $22/oz and cooper is at a
one-month low of $3.20.
The corporate debt market
continues to be active even with the recent back-up in yields. EMC led the way
with their $5.5 billion three-tranche transaction, their first offering since
2007. The deal was comprised of $2.5 billion of 5-year notes, $2 billion of
7-year notes, and $1 billion of 10-year notes. Pfizer was in the market with
its first US-dollar denominated deal since 2009. It was a $4 billion five-part
transaction consisting of $750 million of a 3-year note, $1 billion of a 5-year
note, $500 million of a 5-year FRN, $1 billion of a 10-year note, and $750
million of a 30-year bond.
The upcoming scheduled FOMC
meeting on June 18th and 19th will provide the Fed with
the opportunity to clarify its recent comments on the idea and timing of a
reduction of bond purchases. The market will be keenly focused on the press
release following the end of the meeting.
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