Successful Treasury note auction leads stocks higher

Markets roared ahead based on mixed news. Ben Bernanke got grilled by a hostile Congress over the Bank of America-Merill Lynch deal last year, the Federal Reserve is starting to wind down aggressive programs designed to help financials get thru the financial crisis in 2008 & jobless claims went up last week. With that news as a background Dow shot up 172, advancers almost 4-1 ahead of decliners & NAZ rose 37. As usual on up days, banks led the way up.

S&P 500 FINANCIALS INDEX

Value 159.38

Change 2.65

% Change 1.7%

The Alerian MLP Index found plenty of buyers, up a very big 5 to 219s. MLPs while not directly associated with the price oil, may have been helped by oil's rise back over 70. However the REIT Index, another principal high yield security index, was up a more modest 1.85 & junk bond funds were flattish.

Alerian MLP Index --- 2 weeks




Buyers bid up oil on hopes for stronger global demand.

CLQ09.NYM

..Crude Oil Aug 09

..70.31

.. 1.64 ......(2.4%)

Treasuries rose on expectations that the FED will keep interest rates unchanged in 2009. Prices benefited when the FED bought $3.2B of long-maturity debt. At today's auction, the seven-year Treasury notes drew a yield of 3.329%, lower than forecast (i.e. a benefit to the Treasury selling the notes) & with more than double the number of bids at the last auction in May. The yield on the 10-year note tumbled 14 basis points to 3.55%, one of its biggest declines this year.

The notes sold today were forecast to yield 3.36%. The auction was the largest offering of seven-year securities since sales began in 1981. The bid-to-cover ratio was 2.82X, at the May auction it was only 2.26X. Indirect bidders, including foreign central banks, purchased 67.2% of the notes vs 33% at the May sale & an average of 33.2% at the last four sales. The sales of Treasuries this week were considered successful, important with more many offerings ahead. Foreign buyers (can your spell China?) have become critical for successful auctions.

•Treasuries Extend Gains After U.S. Sells $27 Billion of Seven-Year Notes

Less attention was paid to the announcement that the FED will be winding down aggressive programs designed to helps financials get thru last year's meltdown. One program intended to support money market mutual funds will lapse by Oct 31 & the FED is reducing the amount it will lend to banks under two others. Easy money (i.e. cheap money programs) will be reduced, forcing banks to work harder to make profits.

• Fed scales back emergency lending programs- AP

At Congressional hearings, Bernanke was hit with very tough questioning over his conduct during the financial crisis last year. This is the same group which didn't have a clue about a financial meltdown when both parties held conventions 2 weeks prior to the collapse of Lehman. Now they are great at second guessing, after passing record spending bills without taking the time to read them! Dow closed near its highs. Today, the bulls were in charge but Dow is still down 100 this week.


Dow Jones Industrials --- YTD