BOND MARKET RECAP
By Rom Badilla, CFA – Bondsquawk.com
U.S. Treasuries were relatively unchanged for most of the day before a late selloff in equities triggered a flight to quality, which resulted in yields declining. The 10-Year outperformed the rest of the maturity spectrum as the yield declined 6 basis points to 3.14 percent. The Long Bond followed suit and closed the session at 4.08 percent, a drop of 5 basis points. The yield on the 5-Year also declined 5 basis points to 1.93 percent while the 2-Year finished only 5 basis points away from the 2010 lows. The yield on the 2-Year dropped 2 basis points from the prior close to end today’s session at 0.71 percent.
10-Year U.S. Treasury Yield – Intraday Chart
In auction news, the U.S. government will sell $36 billion in 3-year notes, $21 billion in 10-year debt and $13 billion in 30-year bonds beginning tomorrow. Despite the reduced size from the previous auctions, supply pressures could come into play this week and test the market’s appetite for the high quality securities.
The LIBOR-OIS spread which is an indication for banks’ willingness to lend increased almost a full basis point to 32.1.
While Germany’s 5-Year was flat for the day at 1.44 percent, bond yields throughout most of Europe continued to move higher. Belgium and Austria saw an increase of 14-15 basis points as their 5-Year ended the day at 2.92 and 2.26 percent, respectively. France’s 5-Year finished higher by 7 basis points to 1.83 percent.
The PIIGs were wider as well as Spain widened 16 basis points to 3.76 percent. Italy’s 5-Year increased 11 basis points to 3.27 percent. Ireland closed at 4.10 percent, an increase of 5 basis points while Portugal increased 7 basis points to 4.13 percent. Greece’s 5-Year was flat on the day at 8.60 percent.
Spain 5-Year Yield Historical Chart
Lower rated credit spreads were wider on the day. The Bank of America Merrill Lynch US High Yield Master Index increased 4 basis points to a spread over comparable Treasuries of 718. The US Corporate Index, which consists of four thousand investment grade securities, was flat on the day and closed at a spread of 208 basis points.
For an indication of corporate spreads in Europe, we look to the Credit Default Swaps market. Markit iTraxx 5-Year Europe CDS which is composed of 125 investment grade entities from various sectors, jumped 10 basis points to a spread of 136. Comparatively, the North American counterpart (CDX.NA.IG 14) increased 5 basis points to a spread of 130.
Markit’s iTrax Europe 5-Year CDS Historical Chart
Stocks were down again today as the S&P 500 closed at 1050.47, a drop of 1.4 percent. The Nasdaq declined 2.0 percent to 2173.90. The CBOE VIX Index advanced 3.1 percent to 36.57.
The Dollar Index gained 0.3 percent to 88.485. The Euro dropped 0.4 percent to 1.1923 while the British Pound increased 0.1 percent to 1.4468.
