This Week in Corporate Finance (11/15/13)

This week we continued our recent steady march towards the Dow at 16k, the S&P 500 at 2k (though honestly, we do need to break 1,800 first) and the NASDAQ at 4k. There is growing optimism that the US economy will continue to improve and at the same time, the Fed seems to be in no rush to start their “tapering” operations.
 

The Dow reached yet another all-time high this week of 15,962.66, which is up +27.12% over the past year and +143.36% since the low of March 09, 2009. The S&P 500 touched a new all-time high of 1,798.187, up +32.75% over the past twelve months and up +165.26% since its March 2009 low, and the NASDAQ hit a 13-year high of 3,985.11, up +40.39% over the past 365 days and up +213.74% since its 2009 low.

 

US Treasury yields were lower across the board this week after Fed chairman-designate Yellen provided reassuring words that the Fed wouldn’t start “tapering” immediately. Given the recent positive economic news, some parts of the market started to price in a “tapering” as soon as the next FOMC meeting on December 17^th & 18^th. Now the market is a bit more comfortable with the idea of a “tapering” that begins in March 2014.

 

For the week, the 2-year note yield was down -2bps to 29bps (after being as high as 33bps); the 5-year note yield was down -7bps to 1.34% (after being as high as 1.45%): the 10-year note yield was down -4bps to 2.70% (after being as high as 2.79%); and the 30-year bond yield was down -6bps to 3.79%. With the 2-year TSY at 29bps, the market isn’t pricing in a tightening of interest rates until mid-2015.

 

The yield curve is at its steepest slope in over two years. Historically, the market has perceived a steeper yield curve as indicative of accelerating economic activity.

 

Mortgage rates continued their recent upward trend. The average 30-year fixed-rate mortgage rose to 4.35% this week (up +100bps from a year ago) and the average 15-year fixed-rate mortgage rose to 3.35% (up +70bps from a year ago).

 

The market for new issuance of corporate bonds remains wide open. Leading the pack this week was Royal Dutch Shell (the world’s largest company as a function of revenue) with their $4 billion four-tranche offering consisting of $750 million of a two-year FRN, $1 billion of a three-year FRN, $1 billion of a three-year note and $1.25 billion of a five-year note. Volkswagon AG (Global #9 company) raised $2.15 billion with its own four-part transaction comprised of $400 million of a two-year FRN, $750 million of a three-year FRN, $500 million of a three-year note and $500 million of a five-year note.

 

Both oil and gold continued to flounder about looking for some direction, and ended the week basically unchanged at $93.73/barrel and $1,287.80/oz, respectively. Gasoline prices continue to drop, falling to near three-year lows. Some US customers have already seen prices drop below $3/gallon.

 

On the very short-end of the credit curve, 3-month LIBOR continues to trade near its all-time low yield of 23.59bps.