Treasuries Break Through Support On Record Auctions This Week

NEW YORK (MarketWatch) -- Unlike years past, the U.S. stock market will pay close attention this week as the Treasury sells a record amount of government debt, including $115 billion in notes and $6 billion of its inflation-indexed 20-year bonds.

"The one thing that makes this all plausible is that last week, the Fed Chairman [Ben Bernanke] in his testimony to Congress stated that while the recovery may be underway, it will not likely include inflation," said Kevin Giddis, head of fixed income trading and research, Morgan Keegan.

"This was the best news the markets could hope for and it is likely the reason for the rally in stocks," said Giddis of last week's trade, which on Friday had the Dow industrials closing at their highest level since early November.
On Monday, stocks and Treasury prices fell "as traders and investors prepare for a Treasury onslaught never before seen in our lifetime," Giddis said.

Information technology and consumer shares feed the declines as the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 9,085, -8.54, -0.09%) fell 49.5 points, or 0.5%, to 9,043.74. The S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 977.97, -1.29, -0.13%) declined 6.6 points, or 0.7%, to 972.66, while the Nasdaq Composite [s: comp] shed 18.36 points, or 0.9%, to 1,947.60.

"If the stock market is right and the economy in the second half of the year will have a strong rebound, then interest rates are going higher due to higher inflation and demand on the part of foreigners, who own half our debt, and others for higher yields for the enticement of buying the enormous new supply," said Peter Bookvar, equity strategist at Miller Tabak.