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By Rom Badilla

Prompted by a weak retail sales data release which suggests an economic slowdown, U.S. Treasuries gained, offsetting some of the losses from yesterday. The long-end of the curve re-flattened as yields declined by 9 basis points. The 10-Year and the Long Bond closed the week at a yield of 3.23 and 4.15 percent, respectively. The yield on the 5-Year finished at 2.02 percent, a drop of 9 basis points. The 2-Year decreased 6 basis points to a yield of 0.73 percent.

10-Year U.S. Treasury Yield - Intraday Chart

The yield differential between 2-Year interest rate swaps and the 2-Year Treasury increased almost 3 basis points to a spread of 39. The LIBOR-OIS spread was lower today by three-tenths of a basis point to 32.4.

European bond yields were generally lower. Germany 5-Year closed at 1.45 percent, a decline of 4 basis points while France 5-Year followed suit and finished the week at 1.77 percent. The yield on Greece 5-Year dropped 2 basis points to 8.63 percent while Spain finished at a yield of 3.50 percent, a decline of 5 basis points. The yield on Portugal 5-Year decreased 6 basis points to 3.92 percent while Ireland closed lower to 4.08, a move of 2 basis points. Italy finished at 2.88 percent, an increase of 5 basis points.

Back in the US, credit spreads were again mixed. The BofA Merrill Lynch High Yield Index increased 8 basis points to a spread of 727. The US Corporate Index which contains four thousand investment grade bonds, was unchanged to close the week at a spread of 213 basis points. The US Bank Index also finished flat to a spread over Treasuries of 286 basis points.

BofA Merrill Lynch US High Yield Index - YTD Chart

Mortgage backed securities outperformed comparable Treasuries. The yield differential between Par Priced 30-Year Conventional MBS and the 10-Year Treasury declined 2 basis points to a spread of 84. Spreads have gradually declined throughout the week after spiking last Friday to 93 basis points due to the weak employment numbers. The spread started June at a spread of 74 basis points. The national average for 30-Year Fixed Rate mortgage loans is at 4.84 percent as of June 10 according to Bankrate.com

Unlike their bond counterparts, stocks shrugged off the weak retail sales number and rallied. The S&P 500 Index advanced 0.4 percent to 1091.60 while the Nasdaq climbed 1.1 percent to 2243.60. The CBOE VIX index lost 5.8 percent to 28.79.

The Dollar Index gained 0.4 percent to 87.507. The Euro was close to flat by dropping only 0.1 percent to 1.2112. The British Pound declined 1.1 percent to 1.4552.

Gold Spot prices jumped back on the rally horse by adding 0.8 percent to 1226.7. For the week, Gold is higher by 0.6 percent.

Source: Bond Market Recap for Friday