"Don't Worry, Be Happy"

Treasuries sold off hard as the combination of strong existing home sales, falling weekly jobless claims and a poor TIPS (Treasury Inflation Protected Securities) auction drove rates toward recent support close to 3.5%. A poor TIPS auction should be positive in that there's less demand for inflation protection but its hard to argue with the bond vigilantes concerned about improving economic growth. In the end it seemed a case of investors not wanting such low yielding securities, inflation protected or otherwise. That was confirmed by the $15 billion of orders for the $6 billion, 3 tranche bond deal for the Brazilian energy company Petrobras in what was the largest emerging market debt deal on record. With ample spreads of 190 bps over Treasuries for the 5 year tranche and 195 over for the 10 year as well as 220 over for the 30 year, investors clearly expressed their desire for higher yields while lending to a company with a solid business profile and reasonable leverage. The Baa1 (positive outlook)/BBB- rated company priced at a small concession to secondary trading levels with the appeal of the deal for many being the opportunity to buy big blocks of USD denominated bonds with more yield than other comparably rated securities.