Bond Market Recap


By Rom Badilla, CFA – Bondsquawk

July 16, 2012

The bond market rallied further today after the release of an economic report that suggested waning consumer demand and a slowing U.S. economy. The U.S. Department of Commerce released Retail Sales figures which showed a decline of 0.5% in June after declining 0.2% in the prior month. Today’s number which is a major indicator of consumer spending trends and the general direction of the economy, disappointed market participants since economists’ surveys were calling for an increase of 0.2%.

Furthermore, Retail Sales excluding Autos fell 0.4% after a similar drop in May. (For More In-Depth Analysis on Today’s Economic Data Releases, click here and here)

As a result of the weaker than expected economic data which may prompt the Federal Reserve to embark on another round of buying U.S. Government bonds to help stimulate the economy, U.S. Treasuries rallied as yields declined across the maturity spectrum.

According to Trade Monster’s Bond Trading Center, the yield almost reached the all-time low set in early June but bounced higher toward the end of the session. Still, the price of the current benchmark 10-Year note managed to gain 0.3% as the yield fell 3 basis points from last week to close at close at 1.47%.

The yield on the 30-Year aka the Long Bond fell by 2 basis points to 2.55% which translates to a dollar price gain of 0.6%. The “belly” of the curve in the 5-Year note saw a similar decline in yield and closed at 0.60% for a price increase of 0.2%. The yield on the 2-Year inched lower by a basis point and now stands at 0.23% which is below the Federal Reserve’s Overnight Target Rate of 0.25%.

In the credit sector, Corporate Bonds followed their Treasury counterparts and gained as yields were generally lower.  After beating analysts’ expectations on revenue from investment banking activities, Citigroup bonds rallied on the news. The yield on Citi’s benchmark note, 4.5% Coupon Maturing January 14, 2022 declined 3 basis points to 3.837%.

Similarly, the yield on Goldman Sachs 5.75% Coupon Maturing January 14, 2022 (CUSIP 38141GGS7) fell 5 basis points to a yield of 4.597%.

The highly rated Wells Fargo which is rated ‘AA’ by Standard and Poors saw their yields drop as well but lagged its competition. The yield of the benchmark note, Wells Fargo 3.5% March 8, 2012 (CUSIP 94974BFC9) dropped just a basis point to 2.830%

Away from the popular and much-focused Banks and Financials, other Investment Grade corporate bonds rallied as well. The yield on Cisco Systems 4.45% Coupon Maturing January 15, 2020 (CUSIP 17275RAH5) ended the session at 1.986% for a decline of 4 basis points from last week’s close. The yield on Intel Corporation 3.3% Coupon, Maturing October 1, 2021 (458140AJ9) followed suit and finished at a yield of 2.238%.

Target 2.9% Coupon Maturing January 15, 2022 (CUSIP 87612EAZ9) had just a basis point drop to a yield of 2.318% while the yield on Wall-Mart Stores 3.25% Coupon Maturing October 25, 2020 dropped 3 basis points to 1.944%.

The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Bondsquawk or its employees.



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