Marvin Loh – Managing Director, BNY Mellon Capital Markets, LLC
Risk aversion increased slightly during the week, with Europe providing the catalyst for a better bid in Treasuries and a slightly flattening curve. Although Ireland reached a favorable agreement with its creditors (EU and ECB) which allowed its yields to fall to pre-crisis levels, the specter of a dysfunctional economy re-emerging in Spain and Italy caused its yield premiums to rise by the sharpest levels since October. Other risk assets, particularly equities, staged a rebound after initial weakness, indicative of the large central bank stimulus that continues to alter money flows. The great rotation from bonds into stocks continues to make news, although we are skeptical that it will affect all fixed income asset classes, as improving stocks is also indicative of an improving economy. Sequestration is only a month away, which will get increased attention as the $85 billion reduction in government spending in 2013 and $1.2 trillion over 10 years gets closer. For those dealing with the third “100-year” storm in a year, be smart and stay safe. Read the full commentary now.