This Week in Corporate Finance (11/01/13)

The basic takeaway from this past week is that the US economy continues to grow but at a not-so-fast pace as to raise fears of inflation. The FOMC met and reinforced their recent message of a steady-as-she-goes approach to changing the current level of stimulus. It seems most likely that the Fed won’t start to “taper” until late first-quarter 2014, at the earliest.

 

The back-end of the US Treasury market sold-off a bit, while the front-end was relatively unchanged. It’s interesting to note that the T-bills (3mo, 6mo, and 12mo) are actually yielding -6bps to -8bps less than a year ago with the 2-year note yielding only +3bps more from twelve months ago.

 

Over the past week, the 2-year note yield is up +1bp to 31bps; the 5-year note yield is up +10bps to 1.37%: the 10-year note yield is up +12bps to 2.62%; and the 30-year bond yield is up +10bps to 3.69%. Mortgage rates have continued to drop. The average 30-year fixed-rate mortgage fell to a four-month low of 4.10% and the average 15-year fixed-rate mortgage dropped to 3.20%.

 

The US stock market continues to cruise along, reaching new higher highs. The Dow touched a new all-time high of 15,721.00 and is currently up +18.11% over the past year; the S&P 500 reached its new all-high of 1,755.88 and is up +23.49% over the past twelve months; and the NASDAQ soared to a new 13-year high of 3,966.71 and up 29.87% over the past 365 days.

 

Corporate issuers took advantage of the recent drop in interest rates and came to the market with a bit of gusto. Coca-Cola led the pack with its largest offering ever, a $5 billion five-tranche transaction. The structure was comprised of $500 million of a three-year FRN, $500 million of a three-year note, $1.25 billion each of a 5-year and 7-year note and $1.5 billion of a ten-year note. Altria issued $3.2 billion in a two-part offering that consisted of $1.4 billion of a ten-year note and $1.8 billion of a thirty-year bond. Proctor & Gamble sold $2 billion via a three-tranche offering made up of $500 million of a three-year FRN, $500 million of a three-year note and $1 billion of a five-year note.

 

Oil prices continued their recent 4-week slide with TWI falling thru the $95/barrel floor, dropping to as low as $94.36/barrel. This is the lowest the price of oil has been since June, and it is a reflection of growing supply and a strengthening US dollar. The price of gold dropped to a 2-week low, cotton prices touched their lowest levels since January, and coffee prices are in their longest slump since 1972 (think “American Pie” by Don McLean).

 

Talk of the ECB lowering rates, as soon as next week helped to cause a bit of a sell-off in the Euro. The Euro fell by -2.3% to a low of $1.3480 its worst five-day performance since July 6, 2012.

 

In other Central Bank news, the Reserve Bank of India (RBI) raised their repo rate for the second time in less than two month (up +25bps to 7.75%) to try and curb the recent increase in inflation. In September, wholesale prices in India were up +6.46%, while retail prices were up +9.84%.

 

I hope everyone who attended AFP’s Annual Conference in Las Vegas had a wonderful time. Please start preparing your proposals for review for our next Conference in Washington, DC in November 2014. The competition for speaking slots seems to increase every year. We tend to end up with the best and most insightful sessions via our peer review, with the attendees as the true beneficiaries.