Welcome to the start of the second half of CY2013. I normally don’t like to call when we have started a new chapter in the ongoing saga of our economic recovery, but I’ll go out on a limb and state we have turned a significant page. The Employment report on Friday reinforced the new narrative of the US economy being able to sustain itself on an ongoing basis and for the Fed to begin to reduce the amount of monetary stimulus it has been providing in the relatively near future. With the US economy now producing its greatest rate of job creation since 2005, markets around the world are adjusting to this new “normal”.
I think it’s safe to say the US Treasuries have been on the losing end of all this positive news regarding the US economy. Over the past three weeks, the 2-year note yield is up +12bps to 39bps (after being as high as 43bps); the 5-year note yield is up +56bps to 1.59% (after being as high as 1.60%); the 10-year note yield is up +61bps to 2.73% (its highest level since August 2011); and the 30-year bond yield is up +39bps to 3.69% (its highest level since August 2011).
A few other Treasury-related observations: T-bill yields continue to hold tight, as they are still actually lower than where they were a year ago; the jump in the UST 2-year yield implies that the Federal Reserve will start to increase its Fed Funds Rate in the second half of 2014; and with the back-up in yields, the 30-year swap spread has turned positive for the first time since August 2009.
Corporate Treasurers around the world have tapped the brakes on debt issuance of late as the spike in funding costs has caused a bit of a slowdown. Worldwide, debt issuance was at its slowest rate since December 2011 at $196.8 billion.
Commodities that had been seen as safe havens during the financial crises continue to rack up losses. Gold fell to as low as $1,206.90/oz, not far from its recent three-year low of $1,179.40/oz. Silver has traded as low $18.67/oz and has lost over -33% of its value over the past twelve months.
Crude oil has been moving in the opposite direction of late, touching a 14-month high of $103.32/barrel. Oil touched its 52-low week low of $86.29/barrel back in mid-April. The improving economic situation in the US, plus political uncertainty in Egypt has helped the recent surge in oil prices.
Net-net, US equity prices have been trading in a relatively tight range since hitting all-time and multi-year highs back in late May. The Dow closed the week at 15,135.84 (off -2.6% from its record high), the S&P 500 settled the week at 1,631.89 (off -3.3% from its all-time high) and the NASDAQ ended the week at 3,464.11 (off -1.5% from its 12 ½ year high).
