Bonds Fall on Employment, ISM Reports

U.S. 10-year Treasury bonds fell the most in 3 weeks today, after two inflation reports came out unexpectedly positive in the U.S. A private jobs report said that the U.S. added more jobs than expected last month, and the ISM index came in better than traders were looking for. Bonds plummeted on positive sentiment for the U.S., which has struggled lately in the housing sector. Interest rate futures are showing a 15% chance that the Fed will be forced to cut rates this year.

The euro fell against the dollar, giving up some early gains, and also fell against the yen. The ECB decided to hold rates at 4.0%, when most traders and analysts were looking for the central bank to raise rates. ECB President Trichet did not single out inflation as a factor, and many took that as a negative sign for the coming months of the European economy. The euro managed to hit new record highs over the yen this morning, but fell back to trade fractionally lower at the end of the day. The dollar rallied against the British pound today, after falling this morning. The dollar fell slightly against the Canadian dollar today.

Crude oil gained about 0.5% today, on fears of unrest in Nigeria, and also on an unexpected refinery shutdown in Kansas. Crude trades very sensitively to any negative news surrounding oil-producing countries. Nigeria has been in the spotlight for the past year, as rebels continue to threaten foreign oil-producers who do business in the country. A refinery was also unexpectedly shut down last week in Kansas due to major flooding in the area, and traders are concerned that without full capacity, the U.S. won't be able to keep up with summertime demand.

Gold futures fell about 0.7%, as the euro stalled against the dollar. The ECB held the overnight rate at 4% today, and the euro initally reacted positively, but fell through the day to close down on the dollar. Gold normally trades inversely to the dollar and with oil; today's dollar strength led to gold selling, as traders turned to the dollar for safety. Copper futures rose 1.4% on supply worries and strike threats in South America.

Grains mostly rose today. Soybeans gained 0.4%, wheat is up over 3% and corn rose just over 1%.

John Lee
Associate Editor
johnl@tradingmarkets.com