Mel's Blog

Among other significant events, auto giant General Motors filed for Chapter 11 bankruptcy, starting a new chapter as a predominantly government-owned company. GM and Citigroup have also lost their place in the blue-chip Dow industrial average, signaling a fall from grace. Be that as it may, for the week, most indices ended positive -- with the S&P 500 up 2.3 percent, the Dow up 3.1 percent and the NASDAQ up 4.2 percent. With these gains, the Dow has climbed back to the level it started at in the beginning of the year. Stronger rallies were also noted internationally -- markets in China and Hong Kong were up 3 percent while those in Europe rallied at least 2 percent. In the commodity market, Gold (per ounce) is flirting with the $1000 mark, while oil is inching its way up and beyond the $70 per barrel level. Other commodity prices are down but not at distressingly low levels which suggests equilibrium of sorts between supply and demand for these items.

But then "every rose has its thorn." Thus, while the stock markets seem to have revived, the bond markets are facing a minor meltdown. Treasury yields are rising. Conventional reasoning suggests that the reason for this is that the rising stock markets prompt people to move their money away from the bond markets and into stocks. Being the benchmark against which mortgage rates are marked, the 10-year Treasury note yield sky-rocketed to be very close to the 4 percent threshold. Reflecting an increase in home-loan interest rates, the 30-year mortgage rate surged to 5.29 percent.

The coming week is light in terms of economic reports but the auction of the 3 and 10 year notes mid-week will be watched closely to assess the demand for government debt and for indications on the movement of rates in the future. Also, later this week regulators are expected to name banks that are able to repay TARP funds. This can be viewed positively in that it will be an indication that banks are improving and are able to obtain funding from private equity capital. On the flip side, if some banks are allowed to pay too soon, it could stigmatize other players for not repaying earlier.