Bailout hopes keep small caps in the green

Small caps remain in the green near their intra-day highs mid-session, snapping a three day losing streak, as hopes that lawmakers are near agreement on the $700 billion bailout plan cheered investors.

At 12:40 p.m. ET. the Russell 2000 (NYSE:IWM) was up 12.70, or 1.82%, to 710.46.

Investors are sending stocks higher today, as passage of the bailout plan looks more likely. President Bush addressed the nation on Wednesday night in an attempt to rally national support for the plan and called a meeting today with Congressional leaders. The administration and the republicans have conceded to democrats’ amendments surrounding caps on executive compensation and judges’ ability to change the value of the toxic mortgages. Still, issues remain on the table — most notably how to stagger the cost of the plan. Passage of the plan would help thaw the frozen credit markets and enable banks to value assets tied to mortgages.

“Despite the increasingly testy exchanges in Congress, I still assume that some close approximation of the plan (with amendments) as currently being discussed will be agreed and become law next week,” Don Straszheim, vice chairman of investment bank Roth Capital, said in an email. “If this effort would come completely unraveled and stalled out, not impossible, my assumption is we would see a financial sector meltdown almost immediately of monumental proportions. Enough people seem to hold similar views that the ‘failure-to-pass’ outcome seems implausible.  It really is an insurance policy given the state of expectations at present.” 

Though the two day testimony for the $700 billion financial bailout plan is complete, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson will remain on Capitol Hill to testify before the House Committee on financial services on the government bailout of mortgage giants Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE).

While equity markets were higher, treasuries are saying otherwise. Treasuries continued to see yields of unprecedented lows, in a sign that investors demand next to nothing for a safe haven for their short-term cash. The one and three-month Treasury bill yields were both negative at minus 0.38% and minus 0.65% respectively. However, the 2-year and the 10-year were both lower, as their yields were higher midday at 2.1% and 3.8% respectively. (Prices move inversely to yields.)...

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