What’s Wrong With This Picture?

Probably the single biggest development last week on the political posturing around the partial shutdown of the federal government and the debt ceiling charade is the possibility of extending the Treasury’s borrowing authority by five weeks from October 17 to November 22.  This does not solve the problem, of course, but does allow for more time to negotiate and resolve the issues without causing a financial crisis.  Should they not reach an agreement by the later deadline (assuming the extension is accepted), the status then would be the same as today.

The financial markets have responded in an interesting way:

U.S. Treasury Bills (Thursday September 19 through Friday October 11) (courtesy of BondsOnLine.com)


S&P 500 (Thursday September 19 through Friday October 11) (courtesy of BigCharts)


Note that yields on 1- month T-bills remain elevated, yet stocks have taken back about 2/3 of the decline of the past three weeks (essentially in only 14 trading hours).  One of these is not right and something will have to give.

Another observation is that volume actually declined during the two days of the strong advance in the stock market.  That said, volume has not been a good indicator during most of the current bull market, so it is difficult to interpret the significance of this observation.



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