Monday Bond Market Recap

By Maulik Mody

US government bonds became cheaper and stocks recovered after the Fed finished purchasing about $15 billion of Treasuries Monday. This is the highest amount of securities purchased in a single day after the Fed announced $600 billion of asset purchases in November. Trading volume was lower as compared to last week. Commodities and energy prices advanced and the dollar strengthened.

Interest Rates

Treasuries pared gains after the Fed’s purchase as part of the added stimulus to sustain the recovery. The yield on the benchmark inched up 2 bp to 3.34%. The 2-yr was flat at 0.60%, while the 5-Yr advanced slightly as its yield fell a basis point to 1.95%. The Long Bond weakened and traded a basis point higher at 4.44%.

Inflation expectations, as seen by the difference in yields of the 10-Yr Treasury and 10-Yr inflation indexed bonds (TIPS), narrowed by a basis point to 2.28%.

Bonds advanced across the Atlantic. 5-Yr German Bunds advanced as its yield shed 8 bp to 1.95%. 5-yr France bonds also gained pushing its yield 6 bp lower to 2.19%. 5-Yr UK Gilts gained slightly as yields fell a basis point to 1.95%.

Yields ended tighter among peripheral nations too. The benchmark Greece bond pushed higher and traded at 12.48%. Ireland’s bond yield fell 7 bp and traded last at 7.45%. Portugal’s bond gained slightly and ended at 5.24%. Yield on Spain’s bond fell 7 bp to 4.69%.

Capital Markets

Stocks ended slightly higher as investors gained confidence in the recovery towards year end. The S&P gained a quarter of a percent to 1247.08. NASDAQ also advanced by the same amount to 2649.56. The VIX volatility index gained to 16.41.

The dollar DXY index strengthened to 80.596. Euro fell 0.3% against the greenback to 1.3131. The British Pound eased slightly to 1.5513.