In another sign the deficit committee is impacting the markets, stocks have rallied off their lows on a single headline from Senator Max Baucus, a member of the deficit reduction committee: "We're still going forward" implying negotiations were ongoing, citing a "new idea."
Last week, Goldman Sachs predicted that failure to reach an agreement would put additional pressure on stocks and could push the S&P 500 to 1100.
Elsewhere, the $35 2-year Treasury note auction was a huge success—4.07 bid to cover ratio (!), highest since 1992. Some are saying this is a sign that the bond market does not care about the deficit committee.
There is a false sense of security around this. The U.S. bond market has been rallying in good part because the euro--and European sovereign debt—is toxic.
That is a huge amount of debt money that is looking for a home. When analysts start writing stories with titles like "The end of the euro" you know you have a serious problem.
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