Bonds Up on Mortgage Worries

U.S. 10-year Treasury bond prices rose today, on speculation that the mortgage-lending fallout has not yet extended full-force. Bonds fell on Friday on positive sentiments after a comfortable jobs report, but today, prices jumped from those lows. Bonds normally fall on positive sentiment and rise on weakness, so traders took today's market dynamics as a negative sign for the future, and bond prices rose in accordance.

The major currencies were basically flat today, after the euro hit new highs against the yen early in the day. With no economic data coming out today, the U.S. dollar up slightly on the euro and flat on the yen. The dollar managed to close slightly lower against the Canadian dollar, recovering from moderate losses. The dollar also lost against the British pound, after mixed data from the U.K. Traders were said to be anticipating a speech on inflation by Fed Chief Ben Bernanke tomorrow.

Crude oil fell about 1% today, on speculation that unexpected refinery shutdowns will lead to lower demand levels in the U.S. Crude has been rising steadily since the end of May, on widespread speculation that the summer months will bring higher levels of demand and rising prices. With the unexpected shutdown of a number of major refineries in the mid-West, some traders took that as a sign that demand will be on the low-end of the spectrum. Prices fell accordingly. Natural gas futures fell fractionally on weather forecasts for a cool front across the northern U.S.

Gold futures rose over 1% today, on speculation that the dollar is set to weaken after Bernanke's comments to come tomorrow. Gold usually moves inversely to the dollar and with oil; today's gold action was dominated by dollar weakness speculations. Gold has also been trading in sync with interest rates, with high interest rates leading to lower gold prices. Copper futures rose 1.7% after workers went on strike in Chile.

Grains traded mixed today. Wheat fell 1.6%, corn dropped 0.7% and soybeans rose 0.7%.

John Lee
Associate Editor
johnl@tradingmarkets.com