AFP Blogs

Welcome to another week where we pretty much just glided through until Thursday evening in anticipation of potential game-changing news to be released on Friday, and that is exactly what we got. The Employment Report we received paints a picture of an improving US economy that continues to expand even when faced with headwinds from other parts of the world.

In the US, total non-farm payrolls grew by +243k versus a consensus estimate of +135k and the unemployment rate dropped by -0.2% from 8.5% to 8.3% (consensus was for the rate to be unchanged at 8.5%). Payrolls were revised up +57k to +157k in November and by +3k from +200k to +203k in December. The total non-farm employment level for March 2011 (benchmark revision) was adjusted up by +165k. This was the first positive benchmark revision since 2006.

The markets acted as predicted on such good news; equities were up and bond prices were down. For the week, the 2-year Treasury note was relatively unchanged at up 2bps to 23bps; the 5-year note was up 3bps to 78bps, after spending most of the week in record-low territory (the 5-yr touched a record low yield of 69.81bps); the 10-year note was up 4bps to 1.93% (after being as low as 1.79% prior to the release of the employment report); and the 30-year bond was up 7bps to 3.13% (after being as low as 2.94%).

A number of corporate bond issuers came to market this week to take advantage of both historically low yields and investors’ desire for more risky (and higher yielding) assets. McDonald’s came to market with the lowest yield ever on a 30-year corporate bond as they issued $500 million at a yield of 3.70%. Procter & Gamble received the lowest yield ever on a corporate 10-year note by issuing $1 billion with a yield of 2.30%, and they also issued $1 billion of a 2-year FRN. In addition, IBM was in the market with a two-tranche $2.5 billion deal that was comprised of $1.5 billion of a 3-year note and $1.0 billion of a 5-year note. In South America, Petrobras issued the largest Brazilian corporate bond deal ever, a four-part $7 billion transaction that was comprised of $1.25 billion of a 3-year note, $1.75 billion of a 5-year note, $2.75 billion of a 10-year note, and $1.25 billion of a 30-year bond.

News out of Europe was relatively muted this week. The better credits were either slightly stronger or unchanged. The French 10-year Oat yield was lower this week at 2.90%, the Spanish 10-year note was relatively unchanged at 4.99%, and the Italian 10-year note dipped a bit to 5.70%.

Our two problem children in Europe (Greece and Portugal) continue to cause the market much indigestion. The Greek 1-year note broke through the 500% barrier to peak at 520.94% before closing at 479.65%, their 2-year note hit a new high yield of 202.85% before settling at 183.15%, and their 10-year bond traded a bit higher at 34.19%.

The markets are still concerned that Portugal will be the next Greece. The Portuguese 2-year note rose past the 21% mark to reach 21.82% before falling to 15.82%, while their 10-year bond crested at 18.29% (remember this yield was as low as 12.26% as recently as January 13^th) before falling rather substantially to 13.43%.

In the equity markets, the Dow closed Friday at its highest level since May 2008 at 12,862 (you can actually see 13k on the horizon), while the NASDAQ closed at an eleven-year high of 2905.

I hope everyone enjoys the Super Bowl this weekend.

The Fed’s announcement that interest rates will remain in the ultra-low range of zero-to-25bps until late 2014, was by far and away the most significant news of the week. The announcement was a bit of a surprise to the market because it was only last August that the Fed took the extraordinary step of announcing that there would be no tightening of interest rates until mid-2013. As someone who once traded Fed Funds for a living, I can still remember the days where we needed to infer changes in monetary policy based on the Fed’s Open-Market operations. My, how times have changed.

The impact of the announcement was quite immediate and pronounced in the US Treasury market, as the belly of the yield curve substantially outperformed both short and long ends. For the week, the 2-year Treasury note was down 3bps to 21bps; the 5-year note was down 14bps to a new record low yield of 75bps; the 10-year note was down 13bps to 1.89%; and the 30-year bond was down 4bps to 3.06%.

The muted response of the 2-year-and-shorter part of the curve was due to the fact that interest rates are already incredibly low in that part of the curve and ready don’t have any room to move lower. The long-end of the curve failed to rally on the announcement due to concerns that inflation may rear its ugly head, and diminish the value of longer-dated securities.

Europe, as always, was in the news this week. The story out of Europe continues to have more plot twists than a good murder-mystery. This week it was story of the mid-level credits improving while Portugal and Greece continue to dance on the razor’s edge. Bond yields in France, Spain and Italy were all lower. The French 10-year Oat fell to 3.03% from its recent high of 3.82% back in November; the Spanish 10-year note fell through the 5% handle to 4.97%, which is quite a drop from the 6.78% we witnessed back in November; and the Italian 10-year note dropped through the 6% barrier to 5.90%, a 158bp drop since its high back in November.

On the other side of the coin are Portugal and Greece. The market is beginning to fear that Portugal is going to require another bailout in order to avoid any kind of default on its debt. As this fear continues to grow, it is reflected in Portuguese bond yields and CDS spreads. The Portuguese 10-year note rose to a new record-high yield of 15.41% while the spread on their CDS is currently indicating a 70% probability of default.

Greece continues to drag on and on, as we await some kind of agreement as to how the pain is going to be spread out among different market participants. This week the Greek 10-year bond actually dropped a little to 33.93%, still at an incredibly high yield. Unfortunately, both the Greek 1-year and 2-year notes marched into new record-high terrain. The 1-year note reached 466.89%, while the 2-year note broke past the 200% barrier to peak at 200.14%.

The other big news of the week was the US GDP report. The report came in at the strongest number since the second quarter of 2010, but it was still weaker-than-expected at +2.8%. Looking forward, the US economy is expected to grow by +1.8% in 20012, while Japan is expect to expand by +1.7%. The Euro-zone is actually expected to contract by -0.5%.

In the week ahead, the Employment report on Friday will garner much attention. The early consensus is for the Non-farm payroll number to increase by +135k and for the unemployment rate to remain unchanged at 8.5%.

There will also be much focus on the city of Indianapolis as the Giants and Patriots will meet in Super Bowl XLVI.

Well this week was certainly different in one very important aspect, the absence of any really bad news. I’m not trying to be facetious, I can’t remember a week of late where something earth-shattering didn’t happen somewhere. The general feeling of the week was one of recovery and optimism. News out of Europe and the United States painted a scenario of stabilization for the former and one of growth for the latter.

Investors were more willing to move money out of safety into higher-yielding assets, resulting in a gain of over two percent for the Dow this week as money moved out of US Treasuries and German bunds. For the week, the 2-year Treasury note was up 2bps to 24bps (after being as low as 22bps this week); the 5-year note was up 10bps 89bps (after being as low as 78bps this week); the 10-year note was up 16bps to 2.02% (after being as low as 1.84% this week); and the 30-year bond was up 19bps to 3.10% (after being as low as 2.89% this week).

In Germany, the 10-year bund sold-off from its near-record low yield of 1.75% (the record low was 1.67% back in November) to as high as 1.95% before closing the week at 1.93%. The 2-year bund yield also rose during the week, from its near-record low of 13.9bps (the record low was 13.4bp on January 12^th) to as high as 24bps before settling at 20.7bps.

Interest rates in a number of the countries S&P downgraded last week, performed relatively well this week.  One of the strongest performers was the Italian 10-year note which rallied from 6.86% to as low as 6.24% before finishing the week at 6.25%; while one of the weakest performers was the Portuguese 10-year note which started the week at 12.58% before soaring to 14.69% and then closing at 14.62%.

The market continues to keep an eye on developments in Greece. Will there be a deal to swap existing Greek debt for new longer-dated and lower-yielding securities? Investors were quite nervous during the week as the yield on Greek 1-year notes reached as high as 466% before falling to 390%, the 2-year note hit a new record high yield of 189% before falling a bit to 180% and the 10-year bond remained relatively stable, trading in a range of 33.92% to 35.70%, closing near the midpoint at 34.16%.

There were a number of bank bond deals executed this week, in a reflection of the markets’ willingness to take on risk. Goldman Sachs raised $4.5 billion through the issuance of $250 million of a 3-year note and $4.25 billion of a 10-year note; Bank of America brought a $1.5 billion 10-year note to market; and Citigroup issued $1 billion of a 30-year bond.

On the commodity front, natural gas fell to a near-ten-year low of $2.346/btu. Natural gas was trading as high as $13.58/btu as recently as July 2008. The combination of a glut of supply with warmer-than-average winter temperatures continues to hammer electricity producers.

The FOMC will be holding its first scheduled meeting of the New Year this week. The market will be closely studying the text of the meeting to try to determine what, if any, new actions may be on the horizon by the Fed.

Go Ravens!

Welcome to the first full week of 2012 and what a fascinating week it was. Coming into Friday morning, the week pretty much had a “sideways” feel to it. The economic news in the US had been a little bit on the weaker side and the general feeling in Europe had been a little bit on the stronger side. That would all change as Friday progressed.

Even as one can reasonably argue the value of the Credit Rating Agencies has greatly diminished in the aftermath of the financial crisis, the markets were quite focused on the wide reaching downgrades that Europe received. France and Austria both lost their coveted “AAA” rating and were downgraded to “AA+” with negative outlooks. Finland, Luxembourg and the Netherlands maintained their “AAA” status but were placed on negative outlook. Germany is now the only “AAA” sovereign with a stable outlook in Europe.  Spain was dropped to “AA-“, while Italy was cut to “BBB+”. Cyprus, Malta, Portugal, Slovakia and Slovenia were also all downgraded.

Money moved into the safest securities and the US Dollar. For the week, the 2-year Treasury note was down 3bps to 22bps (the low yield for the week); the 5-year note was down 6bps to 79bps (off the its week low of 77bps); the 10-year note was down 9bps to 1.86% (off its week low of 1.83%); and the 30-year bond was down 10bps to 2.91% (off its week low of 2.89%). The US dollar rallied versus the euro, reaching a 17-month high of $1.2624.

It was a historic week for the German bund market, as they auctioned 3.9 billion euro of 6-month bills (Bubills) with a yield of negative -1bp. This was the first time in history this security was auctioned with a negative yield. The German 2-year note reached a new all-time low yield of 13.4bps, their 5-year note fell to a record low yield of 73.3bps, and the German 30-year bund dropped to an all-time low yield of 2.33%.

On the other side of the coin is Greece. There is continued unease with the situation in Athens. Investors continue to doubt the ability of Greece to come through this crisis without some type of a default and loss of principal. The Greek 1-year note actually broke through the 400% barrier and crested at 408.58% before falling back down to 396.64%, and the Greek 2-year note hit a new record high yield of 184.56% before sliding back down to 163.24%.

In another sign of the continued unwillingness of European banks to lend to one other, deposits residing at the ECB reached a new record high of 490 billion euro. This money is just idling on the balance sheet of the Central Bank, providing no stimulus to the European economy.

It wasn’t all gloom and doom this week, as the corporate bond market remained open for plenty of new issuance. The deal-of-the-week was SABMiller’s blockbuster $7 billion four-trache deal. The transaction was comprised of $1 billion of 3-year notes, $2 billion of 5-year notes, $2.5 billion of 10-year notes and $1.5 billion of 30-year bonds. This was the largest deal in almost two years going back to February 2010 when Kraft issued $9.5 billion and Berkshire Hathaway issued $8 billion.

In addition this week, Target was in the market with a $2.5 billion two-part deal, comprised of $1.5 billion of a 1-year FRN and $1 billion of a 10-year note, and Rabobank raised $2.5 billion with the issuance of a 5-year note.

All eyes will continue to be on Europe over the long US holiday and into the rest of the week. The market might start focusing on the upcoming FOMC meeting in DC on January 24^th and 25^th.

Stay safe out there.

Happy New Years to all. Well, 2012 is off to an interesting start, as a holiday-shortened week always has the potential for volatility, especially when an important piece of economic information is to be released like this week’s Employment Report. The week certainly started off with a bang as equity prices were up +1.5% on Tuesday but then moved pretty much sideways for the rest of the week. The week was comprised mostly of two counter-balancing forces fighting for dominance on a hypothetical teeter-totter. Those forces being increased economic growth in the US versus a continuing fear of European crisis and recession.

In the US, the big news of the week was the employment situation. Whether viewing the ADP Report, the Initial Claims Report, or the Employment Report, the market was surprised to the upside. The Nonfarm Payrolls number came in at +200k (versus a consensus of +150k) with an unemployment rate of 8.5%, which was an improvement of 0.1%, while the consensus was for a deterioration of -0.1% to 8.7%. The Unemployment Rate is now at its lowest level since February 2009 and the number of jobs in the US economy grew by 1.64 million jobs in 2011, the greatest amount since 2006.

The idea that the US economy may be growing faster than previously thought helped to incite the movement of money out of safety into a little more risk. For the week, US Treasuries gave up a bit of their rally. The 2-year Treasury note was up 1bp to 25bps (still down 3bps over the past two weeks); the 5-year note was up 2bps to 85bps (still down 13bps over the past two weeks); the 10-year note was up 7bps to 1.95% (still down 9bps over the past two weeks); and the 30-year bond was up 12bps to 3.01% (still down 5bps over the past two weeks).

As for continuing economic fears in Europe, there is now a record amount of deposits residing on the balance sheet of the ECB. In a sign of how wary European banks are becoming, that amount has now reached 455 billion euro.

Interest rates in Europe remain quite elevated. The Italian 10-year bond remained above the dangerous seven percent level, touching its highest yield since late November at 7.18%, before settling for the week at 7.13%. The Spanish 10-year bond spiked 68bps this week from 5.07% to 5.75% before closing at 5.71%. The French 10-year bond jumped from its low last week of 2.94% to a high of 3.41% before winding up at 3.37%. The safety-trade in Europe continues to be German bunds. The 10-year bund traded fairly close to 1.85% all week long, and it was a similar story for the 2-year bund, trading near its all-time low yield of 14.2bps at 16.6bps.

The story out of Greece was actually rather tame this week. Their yields were relatively unchanged this week with the Greek 1-year note at 373.26%, the 2-year note at 135.51% and their 10-year bond at 34.93%.

The euro which has shown amazing strength throughout the entire financial crisis, may finally be showing signs of vulnerability as the economy of the Euro-zone weakens relative to its trading partners. The US dollar reached a 15-month high versus the euro at $1.2698.

The spigot for issuing corporate debt was turned on this week, after a very normal “quiet time” around the holidays and year-end. GE had the deal-of-the-week with their $4 billion three-tranche transaction, which was comprised of $2 billion of a 3-year note, $1 billion of a 5-year note and $1 billion of a 10-year bond. Also in the market this week was Citigroup with their largest debt deal since 2009 with a $2.5 billion 5-year note; Ford Motor Credit with a $1 billion two-part deal made up of $300 million of a 3-year note and $700 million of a 6-year note and Kraft with an 18-month FRN paying 3-month LIBOR plus 87.5bps.

Let’s all hope for a prosperous and successful 2012.

Congratulations to all, as we have survived yet another year of the “Times of Trouble” (see Russia 1598 – 1613). 2011 was a year that started out on a positive note only to suffer through the trials and tribulations of economic, political and even environmental challenges.

As the year began, the market thought it was only a matter of time before the Fed would tighten interest rates to cool the economic growth and potential inflation here in the US. In early February, the market was pricing in a 100% probability of the Fed raising interest rates by the end of 2011 (guess that didn’t happen).

We witnessed the “Arab Spring”, the Japanese earthquake, tsunami, and nuclear catastrophes, and a bail-out of Portugal. We once thought interest rates in Greece were high with their 2-year note at 18.51% and their 10-year bond at 13.83% – how quaint. We began to question the credit worthiness of Italy and Belgium. In the US, we battled through debt-ceiling and credit-rating “crises”. We saw gold soar to $1917.90/oz and oil plummet to $75.71/barrel. We observed the Fed announcing that interest rates would remain “near zero” until mid-2013, and we began to wonder if France had the financial wherewithal to withstand the financial crisis. We had to pull out our history books and look-up the “Twist”. We watched the ECB tighten interest rates by 50bps, only to see them ease by those same 50bps. We saw Italy and Spain flirt with the “crossing the Rubicon” level of seven percent on their 10-year bonds. Quite a year indeed!

This week was relatively free of any earth-shattering news. There were ongoing concerns about Europe as the size of the ECB’s balance sheet ballooned to a record 2.73 trillion euro and the Italian 10-year bond auction as not as strong as some expected.

The US Dollar and US Treasuries continue to benefit from all the uncertainty in Europe. The dollar reached a 15-month high of $1.2858 versus the euro, before trading off a bit to $1.2961. For the week, the 2-year Treasury note was down 4bps to 24bps; the 5-year note was down 15bps to 83bps; the 10-year note was down 14bps to 1.88%; and the 30-year bond was down 17bps to 2.89%. Also benefitting to this flight-to-safety was Germany, whose 2-year bund touched a new all-time low yield of 14.2bps.

We continue to witness year-end funding pressure. The 3-month LIBOR rate reached 58.10bps, the highest it has been since July 2009 and the LIBOR-OIS spread widened to 49bps, the highest it’s been since May 2009.

European interest rates still indicate continued market wariness as Italy was the main focus of the week. The Italian 10-year bond is currently trading at 7.11% after touching 7.13% earlier this week. On a more positive note, the yield on their 2-year note continued to fall after soaring to a record-high of 8.12% last month. The note is currently trading at 5.12%.

Greek government yields continue to remain elevated. The Greek 1-year note pressed up against the 400% level as its yield touched an all-time high of 383.58% before dropping marginally to 358.25%, while their 10-year bond is still at a very high 34.96%

This coming Friday we will we receive the December Employment report. Will the recent improvements in the level of Initial Unemployment Claims augur a stronger US employment picture?

Wishing all a very happy and prosperous New Year!

You know it’s been an interesting week when those in the media start throwing around the word “rehypothecation”. I have the a similar reaction when the folks on CNBC, Fox Business or Bloomberg TV mention “Commercial Paper” or “The LIBOR”, –  it’s the general feeling that someone is reading the words off the teleprompter but the speaker has no idea what it is.

At the start of the week, money flowed into US and German government securities, as investors were nervous about a liquidity crunch in Europe and political uncertainty in Asia. That trade was quickly reversed on Tuesday as the market responded positively to news of a successful Spanish bond auction and a stronger-than-expected German confidence report, combined with stronger US economic indicators. The US stock market was up nearly three percent as money moved out of the safety of Treasuries.

The big news of the week was the injection of 489 billion euro ($636 billion) into the European banking system via three-year loans provided by the ECB. This amount was substantially greater than the expected amount of 293 billion euro, and was even larger than 442 billion euro the ECB injected into the system back in 2009. The markets initially cheered the news of the intervention, but that cheer slowly morphed into a bit of gloom as the day progressed. Investors became concerned that the magnitude of the intervention indicated greater liquidity problems in the European banking system than had been previously perceived. Some market participants are referring to this action by the ECB as a “backdoor Eurobond”.

On Thursday, the flow of good economic news out of the US continued. The Initial Claims report surprised the market by dropping again, this week by four thousand to 364k. This was the lowest level for Claims in over three years going back to April 2008. There seems to be a growing bifurcation between the health of the US versus the European economy.

Net-net, for the week we witnessed a significant backup in US Treasury yields as the 2-year note was up 5bps to 28bps (after being as low as 23bps); the 5-year note was up 18bps to 98bps (after being as low as 79bps); the 10-year note was up 17bps to 2.02% (after being as low as 1.80%); and the 30-year bond was up 21bps to 3.06% (after being as low as 2.78%).

There continues to be year-end pressure in money-market land. The 3-month LIBOR rate continued its recent ascent to close at 57.58bps, its highest level since July 2009, the LIBOR-OIS spread is at 48.1bps, and the TED spread is at 58.08bps, the widest it has been since May 2009.

Germany continues to be the beneficiary of continued uncertainty in Europe. While most European sovereign yields were lower this week, the German 2-year note actually touched its all-time low yield of 20bps, as it is perceived as one of the truest safe-havens available.

Italy continues be a focus of credit-risk for investors. The Italian 10-year bond yield passed the seven percent threshold again, to climb as high as 7.09%, before closing the week at 6.98%.

Greece continues to battle against the market’s belief that a default is inevitable. The Greek 1-year note reached an all-time high yield of 379.29%, before sliding marginally to settle at 376.40%; their 2-year yield climbed as high as 152.14%; and the Greek 10-year bond hit a record high yield of 36.11% before easing a bit to close at 34.95%.

As we head into the last week of 2011 (albeit a holiday-shortened week), most investors will be trying to avoid any last-minute hiccups and trying to close the year in no worse shape than they are today.

A happy and joyous holiday season to all!

As we wind down the year, the story we heard this week was very similar to the story we have been hearing for the past several weeks now: Europe is in crisis, China seems to be slowing down, and the US economy seems to be on an upward trajectory with reasonable optimism for 2012 

Last week’s European Summit failed to soothe the concerns of the investing world that a solution to the current crisis is anywhere in sight. We witnessed a fair bit of volatility in Sovereign debt yields during the week, with yields reaching their crescendo mid-week, before easing off a bit by week’s end. For Italy, their 10-yr bond reached 6.89% before pulling back to 6.59%; the Spanish 10-yr peaked at 6.07% before closing at 5.31%; and the Belgian 10-yr climbed to 4.67% before settling at 4.30%.

Germany continues to be a safe-haven for not only European investors, but investors around the world as well. The German 2-yr note now trades at 21bps, which is the all-time low yield for this security and is actually 2bps through the US 2-yr. With the German 2-yr at 21bps, the market is pricing in the ECB to lower their benchmark rate to the Fed’s zero-to-25bps range in the next twelve months. We shall have to wait-and-see if this comes to pass.

The German 10-yr note rallied all week long, closing at 1.85% which is fairly close to its all-time low yield of 1.67%, reached back on November 10^th. The German 30-yr bond fell to its all-time low yield this week of 2.35%, before bouncing up slightly to 2.37%.

And then there is Greece. Greek debt hit new all-time high yields across the entire length of the maturity curve. The Greek 1-yr note touched 366.30% before falling to 328.68%; their 2-yr note soared to 156.60% before closing at 146.82%; and the 10-yr bond reached 35.86% before settling at 34.62%.

The Euro itself was in the news quite a bit this week as it fell to an eleventh-month low of $1.2946, its lowest level since January 11^th. One of the curious developments throughout the European crisis has been the strength of the Euro. After touching a post-Lehman low of $1.1922 back on June 8, 2010, the Euro has pretty much traded north of $1.30. Might this recent dip be a harbinger of the Euro retreating back to its introductory level of $1.19? Only time will tell.

As the week progressed, we saw an accelerating flight-to-safety trade in US Treasuries. With the Fed’s non-announcement announcement after Tuesday’s FOMC meeting, the benign reports on inflation, and the growing disenchantment with Europe, Treasury yields dropped. For the week, the 2-year note was down up 1bp to 23bps; the 5-year note was down 9bps to 80bps; the 10-year note was down 21bps 1.85%; and the 30-year bond was down 26bps to 2.85%.

Pressure keeps building in the short-end of the curve with the 3-month LIBOR continuing to creep higher and higher. This week the 3-month LIBOR closed at 56.32bps, its highest level since July 2009.

The chances for the markets to see additional volatility over the next two weeks remains relatively high given the uncertainty of the markets, the increased possibility of headlines risk, and the fact many market participants will be away from their trading floors and trying to enjoy a bit of holiday cheer.

Be careful out there.

Why does it feel like we have been down this road before? We get a little good news about Europe, the market rallies on this current bit of hopium, and then reality sets in and we witness the predictable flight-to-safety. This week was completely Euro-centric, and the world will probably be very focused on Europe for the rest of the year.

For all the rocking back-and-forth the markets experienced this week, things are not very different from where we started. In US Treasuries, the 2-year note was down 3bps to 22bps (its low of the week); the 5-year note was down 2bps to 89bps (after being as low as 84bps); the 10-year note was up 3bps to 2.06% (after being as low as 1.97%); and the 30-year bond was up 9bps to 3.11% (after being as low as 2.99%).

So what did happen in Europe this week? On Monday, S&P got the week started by putting most of the Euro-zone not already on negative watch, on negative watch. The market pretty much just shrugged its collective shoulders at this hardly earth-shattering news. The focus of the week was on the Euo Summit taking place in Brussels on Thursday and Friday. As we waited for news of a new rescue plan to come out of Belgium, the ECB in Frankfurt (as expected) announced they were lowering their benchmark rate by 25bps from 1.25% to 1.00%. This was the second consecutive meeting where the rate was lowered by 25bps and now after the two earlier tightenings in the year, the benchmark rate is back to its all-time low.

With the announcement that the ECB would not be accelerating its purchasing of European government bonds, the weaker European sovereigns sold-off.  On Friday, we received news that Europe would be tightening its budget rules and accelerating the start of its rescue fund, so the markets felt a bit calmer, and money moved away from safety into riskier assets.

During the week the Italian 10-yr bond yield spiked to 6.69%, before closing the week at 6.36%; the Spanish 10-yr bond yield got as high as 5.99%, before falling to 5.75%; the Belgian 10-yr bond yield reached as high as 4.75%, before dropping to 4.55%; and the German 2-yr note actually fell to a new all-time low yield of 27bps, before creeping up to 32bps.

And then we have Greece, which continues to spin in its own little Kharybdis. The Greek 1-yr note closed at a new all-time high yield of 352.88%, their 2-yr note hit a new all-time high yield of 150.57% before easing off a bit to 147.99%, and the Greek 10-yr bond settled for the week at an all-time new high yield of 35.06%. The market continues to vote with its wallet that there is a high probability that Greece will default and there will be a significant loss of principal for investors.

We continue to witness ongoing year-end pressures in the money-markets. The 3-month LIBOR rate reached 54.18bps, the highest level since July 2009; the LIBOR-OIS spread widened to 44.8bps, the greatest it’s been since May 2009; and the TED spread reached 54bps, the widest it has been since June 2009.

This was also one of the last good weeks to issue long-term corporate debt before the holidays. Among the companies taking advantage of the open window to issuance included Ecolab with a four-piece $3.75 billion package made up of $500 million of a 3-yr note, $1.25 billion of a 5-yr note, $1.25 billion of a 10-yr note, and $750 million of a 30-yr bond; Gilead with a four-part $3.7 billion deal consisting of $750 million of a 3-yr note, $700 million of a 5-yr note, $1.25 billion of a 10-yr note, and $1 billion of a 30-yr bond; and Hewlett-Packard with a three-tranche $3 billion transaction comprised of $650 million of a 3-yr note, $850 million of a 5-yr note, and $1.5 billion of a 10-yr note.

Also of note this week, the Reserve Bank of Australia (RBA) cut its benchmark interest rate by 25bps from 4.50% to 4.25%. This marks the first time the RBA has reduced rates at two consecutive meeting since February 2009.

All eyes will be on the Fed on Tuesday as the FOMC meets for its last scheduled meeting of 2011. The market isn’t expecting any new pronouncements at this time.