Bonds Up on Subprime Speculations

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U.S. 10-year Treasury bonds shot higher today, on speculation that subprime mortgage problems will spread to other areas of the economy and impede growth. The price of the 10-year bond has risen for 2 straight days on general speculation that the U.S. economy is in trouble. Bonds hit 11-month lows in June on overall positive sentiment, but negative housing reports and other questionable reports have led to a rise in bond prices. Bonds usually rise on weakness and fall on strength, so it's clear that traders are taking recent reports and speculations as bad signs for the U.S. economy.

The dollar was basically flat today against the euro and fell slightly against the yen, ahead of a few key economic reports to be released later this week. Producer prices, consumer prices and housing starts are all out this week, which should provide currency traders with plenty of data to jumpstart volatility. The euro was down fractionally against the yen. The dollar sank against the Canadian dollar, and was down slightly against the British pound.

Crude oil was slightly lower, but still trading close to $74 a barrel. Oil has been on the rise since the end of May, on a string of production worries and general speculation that summer demand will outpace supplies. Crude oil normally rises during the summer on increased energy demand, and this summer has been no different so far. A pipeline malfunction in the North Sea led to higher prices on Friday, and with little news to trade on, prices are holding steady. Natural gas futures fell 4.4% on mild weather forecasts.

Gold futures fell fractionally today, on speculation that the dollar could rally against the euro soon. Gold trades inversely to the dollar and with oil; today traders sold gold on speculations of dollar strength. Copper futures fell 1.4% on comfortable supply levels.

Grains fell today. Soybeans dropped 5.4% and corn fell about 5.6%.

John Lee
Associate Editor
johnl@tradingmarkets.com