Bonds Keep Creeping Higher

U.S. 10-year Treasury bonds moved slightly higher today, after a U.S. mortgage lending company reported its third straight loss for a quarter, and traders continue to bet that subprime mortgage issues will spread to other areas of the economy. Traders have been keeping a close eye on slowing housing growth and the mortgage meltdown, and bonds have been on the rise since the beginning of June. Bonds typically rise on weakness and fall on strength, so it's clear that traders are taking recent reports and market activity as a negative sign for things to come.

The dollar sunk to new records against the euro today, and also fell against the yen, after a major mortgage lender reported its third straight profit decline on Tuesday. Traders sold the dollar on further evidence that the subprime mortgage fallout is not being contained, and that the effects could spread to other areas of the U.S. economy. Investors are particularly worried that combined with U.S. housing growth problems, the subprime mess could have major ramifications. The yen rose today against the euro. The dollar fell against the Canadian dollar, and also dropped against the British pound.

Crude oil fell around 2% today, on speculation that tomorrow's energy report will show a significant increase in gasoline reserves in the U.S. Last week, traders were expecting an increase, but gasoline reserves had actually plummeted, sending prices higher. Summer is typically a period of high energy demand and usage, which leads to higher prices. Natural gas futures dropped over 2% on mild weather forecasts.

Gold futures rose 0.5% to nearly 3-month highs, as the dollar continued to fall against the euro today. Gold normally trades inversely to the dollar and with oil, and today traders bought oil to avoid dollar weakness. Copper futures fell around 1% on concern that high prices will limit global demand.

Grains were nearly flat today. Soybeans were up about 0.4% and corn rose the same.

Stocks dropped sharply in Tuesday's session after missed earnings from major blue chip firms were announced. Missed earnings from Countrywide Financial also contributed to the widespread selloff as ongoing fears over the subprime meltdown reaches new levels. Click here to read the rest of today's Stock Market Recap.

John Lee
Associate Editor
johnl@tradingmarkets.com

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