Bonds Rise on Durable Goods

U.S. 10-year Treasury bond prices rose today, but gave up some of those gains as the day went on. A U.S. durable goods orders report came out surprisingly weak today, which helped to push bond prices higher. Bonds usually rise on economic weakness and fall on strength. After hitting 11-month lows about 3 weeks ago, bonds have been climbing higher on negative housing reports and other inflationary data. The final GDP numbers from Q1 are due out tomorrow, so that should provide bond traders with some data to move the market.

The yen continued its rally today versus the dollar and euro, as traders scaled back carry trades to lessen risk exposure. Traders borrow the yen to invest in more profitable currencies in the so-called carry trade. Today, the yen jumped as traders bought back the yen to cover positions in riskier areas. Traders around the world are concerned about the mortgage fallout in the U.S. and high global interest rates. The euro fell slightly on the dollar, despite a weak inflationary report out of the U.S. The dollar rose slightly against the Canadian dollar.

Crude oil gained about 1.8% today, after an Energy Department report showed an unexpected decline in gasoline last week. Oil has been pushing towards the $70 mark for a few weeks now, and some major Middle Eastern or Nigerian news could push price over that watermark. Summer demand in the U.S. means higher prices, and usually declining reserves, so traders are sensitive to any supply-related issues.

Gold traded with fractional change today. Gold fell yesterday on rising global interest rates, as traders turn to bond yields as a safety alternative to the precious metal. Gold usually trades inversely to the dollar and with oil, but lately, interest rates have been factoring into the equation. Copper futures rose 1% today on strike threats from South America.

Grains traded lower today. Soybeans fell 0.4%, wheat dropped 0.2% and corn plummeted 3.3%.

John Lee
Associate Editor
johnl@tradingmarkets.com

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