Marvin Loh – Managing Director, BNY Mellon Capital Markets, LLC
It seems appropriate during the holiday season that the Fed has provided a full punch bowl for us to feast on. In what has become a hallmark for this Fed, Chairman Bernanke effectively gave the market everything it asked for, rolling over Operation Twist into an unsterilized buying program and tying low rates to economic performance. The one negative, which the markets have keyed on, is the potential for higher inflation, which has caused Treasury rates to rise and the curve to steepen. Most trading ranges remain intact however, and we have retraced a portion of these higher yields already. There was little progress on the fiscal cliff, with a dwindling number of Congressional days remaining. We would not be surprised if we slid over the cliff, although the market’s constructive performance over the past few weeks indicates that no agreement may not be calamitous so long as a resolution is forthcoming soon into 2013. Corporate issuance remained strong, particularly for the second week of December, as companies continue to tap ultra-low yields. We expect that we have borrowed from next year’s issuance in investment grade land, something that will favor spreads going into 2013, although we do not envision much more spread compression as we are near all-time low yields and multi-year tight spreads. We wish all our readers a healthy and happy Holiday Season and will return with our commentary in 2013. Read the full commentary now.