Today, President Obama’s team unveiled its budget for the fiscal year starting on October 1st. The $3.8 Trillion budget in broad strokes calls for an increased spending and higher taxes, particularly on the wealthy. For bond holders, there were several interesting proposals. One of which was to curve the tax benefits of municipal bonds. Second was a proposal to issue more Build America bonds which don’t have the tax benefits normally associated with Municipal bonds but have a large portion of their interest paid by the federal government.
In short, the market had almost no reaction to the budget release. If this proposal was passed as is, there would be a tremendous market reaction. Munis would drop in value and treasury yields might rise, as the government is not curbing its spending. However, the President’s budget proposal is a political document and the market does not think the final budget will look anything like the proposal.
All three major stock indexes finished the day with a nice gain. The S&P 500 (SPX) was up 0.64% closing at 1,351.19, a change of 8.55 points. The bond market also stayed close to previous Friday’s numbers. iShares Barclays Aggregate Bond ETF (AGG) finished basically unchanged $83.69 down 1 cent. (note as bond prices fall, yields increase).
The Dow Jones industrial Average (ETF: DIA) rose 65 points, a gain of 0.51%. Apple (AAPL) briefly hit an all time high today. So far the death of Steve Jobs has not had an impact on the stock. However, three years from now will Apple be as innovative? Also rising today was MSG stock. Why because of the play of a basketball player name Jeremy Lin. This kid (he is 23) has led my NY Knicks (owned by MSG) to 5 straight wins. And when you win, more people go to games, buy team jersey’s and watch the games.
In terms of the treasury bond market, the iShares Barclays 20 Year Treasury Bond Fund (TLT) rose 10 cents to $117.09. Junk bonds did even better. iShares iBoxx $ High Yield Corporate Bond Fund (HYG) rising 30 cents to close at $90.55.