Stocks tumble on high Treasury bond yields

Stocks were lower on higher Treasury bond yields. Stock selling began after the Treasury sold a record number of 5 year Treasury notes at 1 PM Eastern time. Dow dropped 173, decliners over advancers 2-1 & NAZ fell 19. Banks felt the selling pressure, many banks lost 3-5%. Even Bank of America (BAC) was down pennies after their announcement this AM about raising capital.

S&P 500 FINANCIALS INDEX

Value 156.10

Change -6.25

% Change -3.9%

The MLP Index pulled back into the 219s in the PM, but up slightly on the day. REITs were weak & junk bond funds mixed. The big story on bonds was in Treasuries.

$35B of 5 year Treasury notes were auctioned today at a yield of 2.31%, a little below an average forecast of 2.335%. Indirect bidders, the class that includes foreign central banks, bought 44.2% of the notes, compared with an average of 32.4% in the last 10 auctions. The so-called bid-to-cover ratio was 2.32X compared with a 2.17X average at the past 10 sales of the securities. Treasury securities fell for a 4th day, pushing 10-year bond yield to a 6 month high of 3.70% (up 20 basis points today), due to concerns that record debt sales will overwhelm investor demand as the economy begins to show signs of stability. The Treasury will sell $26B in 7 year notes tomorrow, the third auction this week. The Treasury raised a massive $720B selling Treasury securities this year, while the Federal Reserve has purchased $130B in U.S. debt.

•Treasuries Fall on Concern Record Government Sales Will Overwhelm Demand


The rise in yields for the 10-year Treasury is extremely important as it's the benchmark for setting mortgage rates.


10-Year Treasury Yield Index - YTD





The FDIC said higher trading revenues & lower borrowing costs at big banks helped the industry earn a $7.6B profit in Q1, compared with a record loss of $36.9B in Q4 2008. However the profit was 61% below the $19.3B earned in the prior year. 8246 banks & thrifts set aside $60.9B in Q1 to cover potential loan losses, up from $36.2B in the prior year. Over 20% of banks & thrifts suffered a net loss in Q1. The crisis atmosphere has cleared, at least for the time being. But troubled loans continue to pile up on banks' books, banks still have challenges to face.

• Banks earned $7.6B in 1Q after record loss in 4Q- AP

Oil had a good day, taking it above the crucial 62 resistant level:

CLN09.NYM

..Crude Oil Jul 09

..63.14

.. 0.69 ......(1.1%)

After Dow's big gain on May 1, it hasn't been able to make headway in May. The S&P 500 sank 17 today, dragging it back into the red YTD.


Dow Jones Industrials --- 1 month