Last week started off with more negative headlines inundating the markets. On Monday, AIG reported more losses than previously estimated. The news led to a flight-to-quality rally in the bond market.
This reversed on Tuesday when billionaire Warren Buffett announced that he had made offers to three top bond insurers to reinsure some $800 billion in municipal bonds. Buffet claimed that one firm had already rejected the offer, although he was waiting to hear from the two others. This put stocks in rally mode and Treasurys in selloff mode as some of the risk premium was removed.