Updated: 04-24-2015

Ongoing reports that Greece may not be able to make its next scheduled debt payment on time, along with so-so- earnings/economic news and word that Chinese securities regulators are aiming to curtail speculative trading behavior, had investors in a de-risking mode last week. Yields on German and U.S. 10-year issuances plummeted more than 10 basis points over the week.

Notwithstanding the worries surrounding Greece, there weren't any real concerns that a contagion effect will impact the U.S. economy. Default spreads on corporate debt were little changed over the week.

4/17/2015 4/10/2015 Change
Fed Fund Futures Rate Prediction Dec. 2015 (56.9) Oct. 2015 (51.8%) ---
10yr Treasury - 2yr Treasury 136 bps 139 bps -3 bps
High Yield - 10yr Treasury 453 bps 450 bps 3 bps
Corp A - 10 yr Treasury 105 bps 106 bps -1 bps
10 yr Bund - 10 yr Treasury -180 bps -178 bps -2 bps
5yr, 5yr Forward Inflation Breakeven 2.13% 2.08% 5 bps

Every major economic release last week, with the exception of the March CPI report, came in below expectations. The March retail sales, industrial production, and new home construction reports were all disappointments.

Yields fell in a relatively equal proportion on the short end and the long end of the curve.

Weaker-than-expected economic growth trends helped push back the first expected rate hike from the October FOMC meeting to the December meeting.

Despite the elevated concerns about economic growth, the default risk was unchanged over the last week. The spread on both corporate and high yield debt to treasuries was little changed.


A flight to quality sent German 10-year bund yields as low as 0.05%, yet the spread between German and U.S. debt remained pretty flat for the week.

A slight upward move in energy prices helped move the five-year, five-year forward inflation breakeven toward the Fed's implied CPI target of 2.5%.

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