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Corporate Finance Week: Stocks Climb, Oil Continues to Fall

  • By Brian Kalish
  • Published: 11/17/2014
This article was excerpted from the latest edition of AFP EconWatch. Read the full newsletter.

Given all the volatility we have experienced over the past several years, it was truly enjoyable to witness a rather drama-free week. While the stock market hit higher highs and the oil market touched lower lows, the U.S. Treasury market was quite subdued as the general narrative of reasonable economic growth (in the +3.5 percent range) combined with low expected inflation (in the sub 2-percent range) kept everyone in a rather optimistic mood..

For the week, the two-year note yield was unchanged at 51bps; the five-year note yield was unchanged at 1.61 percent (the second consecutive week of stability); the 10-year note yield was up 1bp to 2.33 percent; and the 30-year bond yield was unchanged at 3.05 percent. Over the past month, there has been a roughly parallel shift to higher interest rates all along the yield curve, with the two-year, five-year, 10-year, and 30-year all 13bps to 18bps higher. The shape of the yield curve continues to flatten. The spread between the 30yr/5yr is currently at +144bps, not far from its six-year low of +138bps.

While the increase in the yield curve has been less, the 12-month T-bill is up 8bps to 0.14 percent, indicating for the first time in a while the expectation that the Fed will raise the Funds rate before the end of 2015, with the most likely time near mid-year. I am personally going to go out on a limb here, and state for the record, that as of today it is my belief the Fed will not raise the Funds rate until early 2016. We shall see.

Mortgage rates continue to linger near their lows for the year. The average 30-year fixed-rate mortgage is at 4.01 percent, while the average 15-year fixed rate mortgage is at 3.02 percent.

The stock market continued on its recent trend of what seems like hitting new highs every day. The Dow peaked at a new all-time high of 17,705.48 (it’s now up 11.00 percent over the past year), the S&P 500 touched a new all-time high of 2,046.18 (up 13.79 percent over the past twelve months), and the NASDAQ reached a new 14+ year high of 4,703.10 (up 17.85 percent over the past 365 days). In Japan, the Nikkei hit a new seven-year high of 17,520.54 (up 17.57 percent over the past year).

World oil prices continued their recent slump. WTI fell to a four-year low of $73.25/barrel, while Brent touched its own four-year low of $76.76/barrel. The impact of falling oil prices is certainly being felt at the retail level, with gasoline prices also falling to four-year lows, currently averaging $2.914/gallon.

The corporate bond market has been active of late with Chevron issuing its first offering since June 2013. The $4 billion, six-tranche transaction was comprised of $700 million of a two-year FRN, $1.1 billion of three-year notes, $650 million of a three-year FRN, $750 million of five-year notes, $400 million of a five-year FRN, and $400 million of a seven-year FRN.
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