Well, the week started with the big news that the U.S. government had avoided a shutdown late Friday night and the operations of the government would continue uninterrupted. Unfortunately, this tussle over the FY11 budget is probably just a slight indicator of the battles that loom ahead concerning the debt ceiling and the FY12 budget. Stay tuned.
The markets this week were a bit more focused on slower growth than inflation. Equity and oil prices were lower, as were bond yields. During the week, oil dropped by almost $7 to a low of $105.77/barrel before bouncing back up to $107.86/barrel. Gold reached a new all-time high of $1,478.32/oz on Friday. Silver reached a 31-year high on Friday of $42.42/oz. This year gold has been a laggard compared to silver, with gold is up 2.6% ytd, and silver up 32%. The price ratio of gold/silver is approximately 35:1, which is the lowest since at least 1983.
U.S. Treasury yields were all lower this week. The 2-year note yield was down 12bps to 69bps; the 5-year note yield was down 20bps to 2.12%; the 10-year note yield was down 18bps to 3.40%; and the 30-year bond yield was down 18bps to 4.46%. The 6-month T-bill also hit a new all-time low yield of 10bps.
The CP market continued its growing ways this week, up $6 billion to $1.099 trillion. This is the highest weekly balance since the week ended November 10, 2010. The ABCP also grew this week, up $1.7 billion to $352.2 billion.
The difficulties in Europe grabbed a bit of the spotlight this week, as Greece, Portugal and Ireland continue to worry debt holders as to how much of their principal may be at risk. The yield on 10-year Greek bonds touched a new euro-era high of 13.83%, while Greek 2-year notes hit 18.51%. The CDS on Greek debt also reached a new high this week at 1102bps. In Portugal, their 10-year bond reached a new record high of 9.00%, while their 2-year note soared to 9.84%. Ireland’s credit rating was cut two notches by Moody’s this week, resulting in Irish 10-year bonds now yielding 9.72% and their 5-year notes yielding 10.15%.
The weekly initial claims report spiked up by 27k to 412k, and the 4-week moving average increased to 395.75k (the seventh week the 4-week average has been less than 400k). Could this increase in claims point to a weaker April employment report? We shall see.
The next FOMC meeting is scheduled for April 26-27th. While there is no expectation that the Fed will change the Fed Funds target from its current 0.00 – 25bps range, all eyes will be on the release to see if there is any indication of a policy change.
Here in the U.S., personal taxes are due today, so hopefully everyone had a great weekend completing our annual tell-the-truth-to-the-government exercise, or was able to complete Form 4868 and worry about it in October.
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