Bonds and Gold Move Lower

U.S. 10-year Treasury bonds fell today, giving up
earlier gains to close lower on the session. Bonds fell as U.S. markets
rebounded from significant losses early in the day. An ISM report rose
more than expected to 52.3, signaling positive growth which boosted investor
sentiment to drive stock prices higher and bonds lower. Bond prices
usually fall on economic strength and rise on weakness, so bond traders took the
ISM report and stock market rally as a positive sign for the U.S. economy.
Bonds have shot up recently on new reports of major housing weakness and some
inflationary pressure.

The yen moved to nearly 3-month highs against the
dollar, and also pushed higher against the euro, on speculation that recent
global slides are forcing traders to exit positions held with money borrowed
from Japan. The yen has been under major pressure lately, but global
selloffs in the last 3 days have boosted the Japanese currency off of lows, as
traders around the globe exit risky positions for longer-term safety. The
international currecny marker has favored currencies backed by inflationary,
positive-growth economies, which has propelled the euro to record highs against
the yen and recent yearly highs against the dollar. Consistent economic
weakness in Japan has led to major lows against most currencies; the U.S. has
been trading near lows against the euro for some time, and looks to be moving
lower against the yen.

Crude oil futures closed fractionally higher
today after the Energy Department reported that daily fuel use in the U.S.
increased by 3.6% from the same period last year. Crude was also supported
by rising tensions between the international community and Iran, which has not
slowed down its nuclear program. The Middle East was a primary reason that
the price of crude reached record highs this summer, and many traders speculate
that prices could move higher again if Iran threatens to remove its oil supply,
which constitutes a large percentage of global output. Natural gas futures
were down fractionally today, on continued forecasts of mild weather in the U.S.

Gold prices fell about 1%, continuing to move
lower with the global equity markets. The global selloff pushed gold off
of recent highs in a broad commodity markets slide. Gold usually trades
inversely to the dollar and with oil, but it was global weakness that took gold
lower today. Copper rose about 0.7% after the ISM report showed an
unexpected increase in manufacturing in the U.S.

Grains fell across the board today. Wheat
fell 1.5%, soybeans dropped just over 3% and corn fell about 1.8%.


The ISM report
rose more than expected, to 52.3 in February.

Construction spending fell 0.8% in January after
a 0.6% gain in December.

John Lee

Associate Editor