Market Analysis

The bleeding in the bond market appears to have stopped this morning which is a welcome sign, particularly given that this week's government's borrowing spree continues with the first part of a $65 billion debt auction beginning today $35 billion in 3 year notes and then continues with $19 billion in 10 year notes offerred on Wednesday and $11 billion in 30 year notes on Thursday.   The Wall Street Journal yesterday reported that several regional Federal Reserve presidents wre hinting at the need to raise short term rates.  Such a move might actually help calm the  markets for longer term bonds as a short term rate hike by the Fed would show it was taking a more aggressive stance to protect against longer term inflation.  Long term inflation fears cause bond investors to demand higher yields/rates so that their projected after-inflation return will remain positive.

In economic news, the Treasury department announced that 10 banks would be allowed to repay their TARP funds and exit the TARP program.  This announcement was expected.  The stock market appears to be taking the delay in the Chrysler sale to Fiat in stride, with most analysts believing it would be unlikely for the Supreme Court to intervene in the sale.  In the world of bonds, investors would most likely view Supreme Court intervention as a positive event which re-affirms that senior debt holders rights have priority over junior or unsecured debt holders.