A driver of global economic worries has been the unprecedented drop in oil prices.  The total return of the S&P GSCI Crude Oil Index is down -8.89% MTD after closing out 2014 down -42.5%.

The S&P U.S. Issued Investment Grade Corporate Bond Index has returned 1.76% month-to-date as the energy sector is only 8% of market value for this index.  In comparison, the energy sector of the S&P U.S. Issued High Yield Corporate Bond Index is 14% and had been as high as 17.6% as recently as October 2014.

The high yield index has currently returned 0.08% MTD, but would be returning 0.32% if Energy was not included as an industry sector.  Similar to high yield in regard to credit ratings and issuers is the S&P/LSTA U.S. Leveraged Loan 100 Index which has return 0.16% MTD.

The yield on the 10-year as measured by the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index tightened by 13 basis point last week to close at 1.83%.  The Friday close before the U.S. holiday was in stark contrast to the prior day’s yield of 1.74%.  To match a 1.74% yield on the 10-year you would have to look all the way back to May 2013.

Currently the U.S. 10-year yield is trading at 1.76% as the market speculates that the European Central Bank (ECB) will start buying more bonds as part of its stimulus package.  On a relative basis, yields in the U.S. look attractive for European investors as their domestic yields reach record lows.  The yield of a German 10-year is presently 0.44%, while the forex quote on U.S. Dollar-Euro is 1.156.  The currency exchange which had dropped from 1.39 last March to a year-end value of 1.209 has continued as the U.S. Dollar continues to strengthen.

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