BOND MARKET RECAP
By Rom Badilla, CFA – Bondsquawk.com
After selling off the past two days, it is safe to say that the “flight-to-quality” trade is alive and well as Treasuries rallied as a disappointing employment report and news of the “grave” situation in Eastern Europe casts doubts over a sustainable economic recovery. The “belly” of the curve led the way as the yield on the 5-Year declined 17 basis points to end the volatile week at 1.98 percent. The 10-Year advanced as the yield finished at 3.20 percent, a tightening of 16 basis points from yesterday. The Long Bond followed suit as the yield declined 14 basis points to 4.13 percent. The 2-Year decreased 10 basis points to a yield of 0.72 percent.
10-Year US Treasury Yield – Intraday Chart
For thoughts on the market and what lies ahead, visit here
Government Bond yields were mixed across the globe. Germany’s 10-Year declined 9 basis points to 2.58 percent while the U.K.’s 10-Year Guilt declined 7 basis points to 3.51 percent. 10-Year Japanese Government Bonds closed this morning at 1.28 percent, a basis point decline. Spain’s 10-Year increased two basis points to 4.52 percent while the Greek 10-Year increased 8 basis points to 8.14 percent.
Credit Default Swap spreads, which is the cost associated with owning protection against a default, on sovereigns widened across the board today. 5-Year Greece CDS increased 36 basis points to a spread of 762. Ireland CDS closed at 285 basis points, an increase of 21 while the spread on Portugal CDS spiked 24 basis points to 358. Spain CDS soared higher to 269 basis points, a jump of 15 from yesterday. Italy CDS followed its PIIG partners by widening 12 basis points to a spread of 245.
Wider sovereign and CDS spreads can spillover and compromise economic growth as mentioned here in a Bondsquawk special report
Back in the U.S., corporate credit markets underperformed comparable maturity Treasuries as spreads widened. The Merrill Lynch High Yield Index closed at spread of 714 basis points, a jump of 21 from the prior day. Investment Grades performed slightly better by widening only 3 basis points to a spread of 208. The U.S. Bank Index widened 5 to a spread of 273 basis points.
Merrill Lynch High Yield Master Index – YTD Spread Chart
Stocks got spanked as the S&P 500 lost 3.4 percent to 1064.88. The Nasdaq closed at 2219.17, a decline of 3.6 percent. The CBOE VIX Index spiked more than 20 percent to 35.48.
The Dollar Index jumped to new highs as it advanced 1.3 percent to 88.233. The Euro dropped reached lows not seen since 2006 as the troubled currency declined 1.6 percent to 1.1967. The British Pound closed at 1.4454, a decline of 1.1 percent. The Japanese Yen advanced to 91.90 per dollar from yesterday’s close of 92.71.
Gold spot prices averted an early morning selloff by rallying late in the day and closing at 1219.90, a gain of 1.1 percent.
Cheers TPC,
How low do you think the EUR can go against the USD?
It’s so difficult to value a currency, but by my calculations I peg the EUR at about $1.17. It’s really hard in my opinion to justify it trading higher than this and with a crisis unfolding and potential break-up it’s value is potentially much lower….