Bonds Take a Breather

U.S. 10-year Treasury bonds rose slightly today. Bonds have been staging a firece rally since mid-July, on concern that subprime and credit problems will spread to other areas of the economy and cause slowing growth. Last Friday, the Fed cut its discount lending rate by 1/2 a percentage point, helping to boost the equity markets, and bond prices have only risen since. Bonds typically rise on economic weakness and fall on strength, so it's safe to say that recent market activity has led to mostly negative economic speculation.

The yen tanked today against the dollar and the euro, after the BoJ kept interest rates at the lowest levels of the major economies of the world. With interest rates low and with no hike in sight, traders fully resumed the carry trade, borrowing yen to invest in riskier, more profitable assets. In the past few weeks, the yen has gained on global equity weakness, and fell on strength, as traders enter and exit the carry trade based on global conditions. The euro was up slightly against the dollar. The dollar fell against the Canadian dollar and the British pound.

Crude rose fractionally today. Crude has been falling lately, on widespread concern that slowing economic growth could lead to a decline in energy demand. The credit crunch has affected oil prices by driving them lower on widespread economic worries. Crude prices have fallen over 10% since the beginning of August, when the slide began. Crude oil fell about 0.6% after a government report of comfortable inventories.

Gold was flat today. Gold normally trades inversely to the dollar and with oil; today, despite dollar losses versus the euro, gold managed to stay near-even. Gold fell sharply last week on concerns that economic growth problems would lead to slowing gold demand, but gold prices have since inched steadily higher. Copper futures rose nearly 2% on rising global demand.

Grains were mixed today. Soybeans gained 1.3%, and corn fell 0.5%.

The major averages began the day in positive territory but shortly thereafter moved below the unchanged line. A rally took place shortly after 1:30 P.M. that brought the Dow briefly above the unchanged line. But downward pressure once again infiltrated stocks, as lingering fears within the credit market continue to plague investors. Click here to read the rest of today's Stock Market Recap.

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