Last week’s performance saw the overall Treasury market as measured by the S&P/Grantor U.S. Treasury Bond Index return 0.03% and is now at 2.08% for the year. Yields moved lower as the yield-to-worst of the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index is now at a 2.49% which brings it back down to level seen at the end of May. The spread between 2s – 30s using the yield-to-worst of the S&P/BGCantor Current 30 Year U.S. Treasury Bond Index and the S&P/BGCantor Current 2 Year U.S. Treasury Index is presently a 2.81%, down from a 3.62% from the beginning of the year. The yield curve has flattened as the 30-year has tightened 68 basis points from the beginning of the year while the 2-year has widened 13 basis points. Year-to-date the S&P/BGCantor Current 30 Year U.S. Treasury Bond Index has returned 15.54%
The story continues for the comparison of performance between investment grade and high yield. Last week investment grade bonds as measured by the S&P U.S. Issued Investment Grade Corporate Bond Index, added a positive 0.18% of total return and has now returned 0.27% on the month and 5.87% year-to-date. Meanwhile, high yield bonds represented by the S&P U.S. Issued High Yield Corporate Bond Index lost -0.48% on the week and are now down -0.64% for the month and have dropped from earlier higher levels to a year-to-date return of 4.87%.
Both investment grade and high yield saw a significant amount of new issuance over the week. Names such as Bank of Nova Scotia, CSX, Toyota Motor Credit and Morgan Stanley for investment grade issuers and high yield issuer of American Energy Permian Basin, MHGE Parent, Rex Energy and Viking Cruises added to the supply of bonds for last week.
The senior loan market continues to chug along as the S&P/LSTA U.S. Leveraged Loan 100 Index holds steady returning 2.49% year-to-date with a yield of 4.36%.
This week’s economic calendar should bring more insight into the health and pace of the economic recovery. Today’s Chicago Fed National Activity Index reported a 0.12, much lower than the 0.18 expected. Last month’s number of 0.16 was revised downward from a 0.21 and continues to drop from March’s recent high of 0.56. Tomorrow will bring the reporting of CPI which is expected to be 0.3% but may surprise as the reported number has been increasing since March and the pace of inflation has been a topic of discussion with some questioning whether the rate of rising inflation is faster than the Fed realizes. In addition to CPI, Tuesday’s reports include Existing Home Sales (4.99m exp. vs. 4.89m prior) and the Richmond Fed Manufacturing Index (5 exp. vs. 3 prior). Only one number will be reported for Wednesday which will be the MBA Mortgage Applications (-3.6% prior). Though the end of the week picks up as Thursday’s Initial Jobless Claims (307k exp. vs 302k prior), Continuing Claims (2510k exp. vs 2507k prior), and New Home Sales (475k exp. vs 504k prior) should keep markets busy right into Friday. Friday will see the release of Durable Goods (0.5% vs. -0.9% revised) along with Capital Goods New Orders Nondefense (0.5% exp. vs 0.7% prior).