The weaker than expected Treasury market bled thru to banks. The S&P 500 FINANCIALS INDEX gave up an early gain in the AM, turning into red in the PM. But the late day rally put the index solidly in the black:
| Value 126.27 | Change 5.52 | % Change 4.6% |
The Treasury auction was unsettling to say the least. They auctioned off $34B in 5 year notes. The expected rate was 1.80%, but the final rate, just shy of 1.85%, was just plain disappointing. The 10 year Treasury bond fell sharply, sending the yield up 12 basis points to 2.77%. One immediate effect of a disappointing auction is that Treasury borrowing costs are increased, today & going forward. Related, the UK failed to attract enough bidders on an auction involving £1¾B of borrowings. This was their first such failure in 7 years. These responses sent a strong signal to markets that there are limits to borrowings, even by the biggest govs.
•Treasuries Decline After Sale Produces Higher Yields, U.K.'s Auction Fails
High yield sectors (MLPs, REITs & junk bond funds) were up thanks to the late day rally.
Oil dropped after the weekly inventory report showed inventories at a 16 year high (suggesting lower future demand). This type report causing oil to sell off is generally favorable for stocks. Unfortunately, today it reinforces the deepness of the recession.
| CLK09.NYM | ..Crude Oil May 09 | ..52.86 | .. 1.12 ......(2.1%) |
There are a lot of questions about today's economic statistics combined with the recent run-up in stocks signaling the "end" of the recession. No way. It looks like current macro economic data suggests that the steep fall, which is very scary, may be ending. But the recession will continue. Unemployment will keep rising, it may go up another 1 or 2 percentage points. That's plenty to worry about. More div cuts are coming. General Motors (GM) is still sweating tires about staying alive, next week will be their next big test. But an end to free-fall provides a modest sense of relief. A new wrinkle, when the gov has to struggle to sell debt, in front of selling massive amounts of debt, more financing problems are ahead.
Jake DeSantis, an exec VP at AIG publicly resigned by having his letter published in the NY Times. He charges that Liddy, the CEO working for a salary of $1, gave into public pressure during a feeding frenzy last week. His complaint is another example of the sloppy handling of this mess by Congress & problems with their eagerness to cover-up their complicity in AIG's problems. The link below has a good discussion about this matter.
Today was an unusually volatile day (for this year at least) as shown in the BigCharts widget in the right sidebar. However, the VIX changed little at 43. Below is a chart for the Dow in 2009:
Dow Jones Industrials --- YTD
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