Bonds Bounce, Dollar Sinks

U.S. 10-year Treasury bond prices rose to the highest levels in 3 weeks today, as traders continue to speculate that housing weakness will continue to be a drag for the U.S. economy. An unexpectedly positive manufacturing report was released today, but bond prices rose nonetheless. Bond prices typically rise on economic weakness, and fall on strength. Today's rise in bond prices could be generally attributed to widespread mortgage sector and housing-related fears.

The dollar plummeted today against the euro and the yen, despite a better than expected manufacturing report out of the U.S. this morning. Some positive reports came out of Europe today, but nothing major to speak of. The dollar fell on basically no news, and despite some positive numbers. The euro is trading at record highs against the yen, up slightly for the day. The dollar slumped against the Canadian dollar as well.

Crude oil futures were about 0.5% higher, on fears that a refinery shutdown in Kansas will lead to a small shortage in energy supplies. Flooding in the mid-west led to a refinery being shut down; during summer, any piece of supply-related news has the ability to move prices. Summer is typically a period of high demand and rising energy prices, so traders are very sensitive to any supply-side news dealing with energy. Natural gas futures were down fractionally.

Gold futures rose 1.3% today as the dollar fell against the euro. Gold usually moves with oil and against the dollar; today's dollar weakness led to gold buying, as traders sought a safety haven for investments. Gold has been trading inversely to interest rates, lately, as well. Copper futures rose 2.2% today on falling global inventories.

Grains traded mixed today. Corn rose 0.7%, soy gained +1.9% and wheat fell 2%.

John Lee
Associate Editor
johnl@tradingmarkets.com