The Fixed Income Weekly is back now that CFA season has ended. When we left off Greece was in serious trouble and it looked like it was either going to get booted from the Euro or take the whole region down with it. Well, neither happened thanks to a trillion Euro band aid from the Eurozone and new liquidity programs from the ECB. Sovereign CDS has chilled out considerably from the highs but the markets confidence in the Euro as a sustainable currency has continued to deteriorate. The rate table has also made its triumphant return.

The safety trade came back in a strong way while I was on break. Euro problems were the catalyst for most of the movement on rates, but some worse than expected employment figures and bad news on the housing front contributed to the Treasury rally. The yield on the ten-year has fallen from 3.98% to 3.23% during this recent 10% selloff in stocks and volatility is up across the board.

Despite the hysteria abroad, corporate credit spreads have held in unexpectedly well. The CDS index, which measures the cost of default insurance across a wide spectrum of dollar denominated corporate bonds, has risen only 30 basis points, pretty incredible considering the 70 basis point drop in benchmark yields.

CPI will be the focus of the market next week as the figures are due to be reported on Thursday. Headline projections are for +2% YoY, +.9% Ex Food and Energy.

Have a good weekend.

Cliff J. Reynolds Jr., Investment Analyst