Bond Fall on Equity Rebound
U.S. 10-year Treasury bond prices rose the most in a month today, after U.S.
and global equities rallied after some steep declines last week. The Fed held
overnight rates at 5.25% yesterday, and reiterated its focus on containing
inflation. The slightly hawkish Fed outlook, combined with a stock rally quickly
picking up speed, helped to send bond prices plummeting. Bond prices normally
rise on economic weakness and fall on strength, so traders took yesterday’s Fed
report and recent bullish market action as a positive sign for the economy.
Bonds are now trading safely below nearly 2-month highs.
The yen fell against the dollar and the euro today, as traders resumed the
carry trade on the heels of a global equity recovery. The yen has been trading
inversely to global equity markets. The carry trade occurs when traders borrow
yen cheaply to reinvest in more profitable assets; equity weakness then leads
traders to sell the borrowed yen to cover the risky positions, causing the yen
to gain. The dollar also fell against the euro today, after the Fed held rates
yesterday, and maintained a focus on inflation. Some traders were looking for a
cut or a plan to deal with recent equity weakness, but the Fed largely ignored
those sentiments. The dollar fell against the Canadian dollar and the British
pound.
Crude oil was basically flat today, after a government report showed an
unexpected drop in gasoline reserves. The Energy Department today said the U.S.
reserves fell by 1.72 million barrels, versus expectations of a 775k barrel
gain. Despite the demand worrying report, crude did not have any major reaction,
and trading within a very tight range to close with fractional change. Natural
gas futures rose about 0.6% today, as weather forecasts continue to call for
more hot weather across the country.
Gold futures rose about 0.5% today, as the dollar slumped against the euro.
Gold normally trades inversely to the dollar and with oil. Today, traders bought
gold in favor of the falling dollar. Copper futures fell nearly 2% today, on a
rise in global inventories.
Grains rose across the board. Soybeans rose 1.6% and corn gained 1.5%.
Stocks once again finished higher after a
volatile session. Cisco earnings boosted the tech-heavy Nasdaq to a 2% gain,
which led the major indices. Cisco finished with a 6.6% gain in today’s trading.
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