Treasury yields remain lower for the start of 2014

  • Counter to the thinking that tapering would drive yields higher; Treasury yields have remained lower for the start of 2014.  Additional collateral needs to meet regulatory requirements; risk-off trading and economic uncertainty in emerging market countries such as Turkey have temporarily kept rates lower than the start of the year.  It remains to be seen how long this trend will last as this morning’s Treasury yields are even lower as the ISM Manufacturing number is a 51.3, lower than the forecasted 56.
  • Looking ahead at more of this week’s economic numbers is Tuesday’s December Factory Orders (-1.8% expected) and Wednesday’s MBA Mortgage Applications (-0.2% prior), along with the ADP Employment Change (190k expected, 238k prior).  Thursday’s Initial Jobless Claims (335k expected) will lead into Friday’s Unemployment Rate which is expected to remain unchanged at 6.7%.  These numbers will either solidify the view of an improving economy or could compound doubts about the strength of the economic recovery.
  • The yield on the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index closed at 2.65% for last week as the index returned 0.68% on the week and closed the first month of 2014 at a 3.54%.  The 10-years yield is a much lower level than where it began the year (3.03%).
  • The S&P U.S. Issued Investment Grade Corporate Bond Index closed last week with a return of 0.33% and finished the month returning 1.92%.  The positive performance was spread out amongst the varying issuers of this broad index as investors sought value in the higher credits.
  • High Yield as measured by the S&P U.S. Issued High Yield Corporate Bond Index ended the week down -0.03%, returning only 0.76% for January.  The S&P/LSTA U.S. Leveraged Loan 100 Index experienced similar performance closing the week -0.08% and the month at 0.62%.  In addition to general selling, energy issuer TXU’s performance negatively impacted both the high yield and loan indices.
    2014Jan 10yr Treasury YTW

 Source: S&P Dow Jones Indices, Jan. 31, 2014

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