Sterling Weekly for February 6th, 2006

It has been a couple of weeks since I was able to get an edition of the Sterling Weekly out for which I apologize. It is unfortunate, but sometimes it just happens when you keep busy. The overall market has obviously come under pressure since my last edition on January 16th. As of right now I do not think it is much more than a normal round of profit taking that really should have been expected following a move above the 11,000 mark by the Dow Jones Industrial Average. I really do not see any reason to suspect that the weakness is much more than that. I see pretty solid support on the Dow at the 10,700 level give or take 50 points, and until the Dow breaks below those levels there is no reason to believe that level of support won't hold. Besides, it is not uncommon for there to be weakness in the market following a strong January. Based upon my read of the charts I would expect this dull weakness in the market to persist for the remainder of this week with a strong probability of a rally starting early next week that lasts through the end of the month. But then again I could be off on my dates by 1-2 weeks as well.

The US Department of Treasury is scheduled to hold its first auction of the 30-Year Long Bond in several years on February 9th. I heard a comment on CNBS this morning that the 30-year bond hasn't been issued in over 4 1/2 years, but I believe the Clinton administration ceased offering the 30-Year Bond either late in its 1st term or early 2nd. Unfortunately I could not locate the exact dates on the Department of Treasury's web site. http://www.ustreas.gov/ However please feel free to look, and if you do find the information please let me know of the correct dates.

I think this is significant and important because the 30-Year Long Bond used to be the benchmark from which a whole variety of other interest rates were set. The interest rate of a 30-year mortgage was one of these. When the Treasury stopped issuing the 30-Year bond the 10-Year Treasury note became the new benchmark. While I am not certain how the re-introduction of the 30-Year Long bond will effect the market, I am pretty confident it will begin to be used again as the benchmark rate for other interest rates including rates for the housing markets.

The yield on the 30-Year Bond can be tracked through the CBOE 30 Yr Treasury Yield Index 'TYX'. However since it has been several years since there was an auction of these bonds, the remaining bonds mature in just over 20 some years. As a result I think there is a good chance we will see some unexpected movement in this index in the days following the auction on the 9th, and once things settle down I will begin reporting on the 'TYX' in this and the Prime Stock Newsletters instead of the current 10-Year yield.