The Fed’s March Rate Decision Could Determine If This Week Is A Lion or A Lamb For Bonds

  • Treasuries closed the week returning 1.32% as measured by the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index.  The index is now returning 0.18% for the month and 4.13% year-to-date.  Continued concerns over the Ukraine political situation may have led to a demand for Treasuries as a flight to safety trade.  The auctions of $64 billion of 3-, 10- and 30-year debt were successful in the current environment.
  • The week ahead for economic numbers started today with March’s Empire Manufacturing which at 5.61 was lower than the expected 6.5.  Tomorrow’s CPI number is widely expected to be unchanged from its prior levels.  It still remains to be seen if any recent weakness in the economy has been due to the harsh winter and if the markets should have more confidence in the Fed’s view of underlying strength in the economy which led to the decision to continue taping its stimulus buying.  Wednesday’s FOMC Rate Decision along with Friday’s Philadelphia Feb Business Outlook (4.0 expected) and the Leading Index (0.2% expected) should provide more clarity.
  • It’s too early in the month to tell how it will end but when compared to January and February, the S&P U.S. Issued Investment Grade Corporate Bond Indexis off to a negative start in return as the index is down -0.04% for the month.  The March 3rd, year-to-date high of 3.15% had eroded down to 2.09% but since then has been climbing back to its current 2.82%.  Investment Grade debt issuance has been active.  Timing the sale of debt before any significant rise in rates may be the underlying motivator of this trend.  The past week saw the pricing of numerous deals including names such as Coca-Cola, Citigroup, General Electric, Burlington Northern, Royal Bank of Canada and Viacom to name a few.
  • The high yield market also saw its share of new issuance over the past few weeks as deals like Access Midstream, Pioneer Energy, Tenet Healthcare and many more came to market.  The S&P U.S. Issued High Yield Corporate Bond Index closed the week down -0.11%.  Like investment grade bonds, the high yield index’s year-to-date return peaked on March 5 at a 2.77% but has yet to recover, presently at a 2.4%.
  • The S&P/LSTA U.S. Leveraged Loan 100 Indexis returning 0.19% for the month and 0.86% year-to-date.  The index has reached a year-to-date high for 2014 at 0.86%; the prior high was 0.74% on January 22.  The market held steady throughout the week as the recent outlook has improved with new deals such as Rite-Aid, Ellucian, Zuffa, and Spirit Aero.  Prior to 2008, the weighted average price of the S&P/LSTA U.S. Leveraged Loan 100 Indexaveraged 98 between 2001 and 2007.  Because of the financial crisis of 2008, the price dropped to a low of 59.20.  Since December 17 of 2008, the weighted average price of this index has risen 66% to its current level of 98.41.


Source: S&P Dow Jones Indices, Data as of 3/14/2014, Leveraged Loan data as March 16, 2014.

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