Bond Prices Shoot Higher

U.S. 10-year Treasury bond prices jumped to
2-week highs today, after a government auction of $13 billion in 10-year notes. Prices moved dramatically higher,
and the yield fell, as the day went on. Investors are speculating that
there is a reduced supply of Treasuries to go around, after yesterday’s smaller
than expected auction of government 3-year notes. Bond prices usually fall
on economic strength and rise on weakness, so investors are viewing the
diminishing bond supply in a negative light.

The yen fell against the dollar and the euro,
after a Japanese official announced that yen weakness will not be a focus of
this weekend’s G-7 meeting. The yen surged earlier this week, on
anticipation that the international committee would look at solutions to the
problem of yen weakness. Comments yesterday from Secretary of the Treasury
Paulson hinted that the committee would not concentrate on the yen, and Japanese
officials today confirmed those suspicions. The international currency
market favors currencies backed by inflationary, positive-growth economies,
which puts the euro in best light. The U.S. has been able string together
a number of positive reports since the beginning of December, which has helped
to boost the dollar. The yen looks to remain in trouble for some time,
backed by weak economic reports and no political intervention.

Crude oil futures fell 2% today to close at
$57.73 a barrel. Crude prices have been testing psychological resistance
at 60, and have been unable to break and hold that crucial level. After
pushing towards 60 and failing, oil plummeted to close down on the day.
Crude oil futures have been pushing higher since mid-January, around the time
when cold weather hit the Northern U.S. Crude prices fell over 30% from
record July highs, on high supply levels and demand concerns. Natural gas
prices fell nearly 0.5%.

Gold futures erased early gains to fall about
0.3%, as falling energy prices hurt the metal on the market. Gold usually
trades inversely to the dollar and with oil, and it was energy action that
dominated today’s gold trading. Investors sold gold in the face of falling
oil prices; gold is used as a hedge against rising oil prices, so falling energy
equated to less demand in gold. Copper futures fell nearly 2% as high
stockpile levels continue to point to faltering demand.

Grains traded mixed today. Soybeans rose
nearly 0.4% and wheat rose around 0.3%. Corn fell about 1%.


U.S. worker
productivity grew by 3% last quarter.

John Lee

Associate Editor