Bonds Bounce, Dollar Sinks

U.S. 10-year Treasury bond prices rose to the highest levels in 3 weeks
today, as traders continue to speculate that housing weakness will continue to
be a drag for the U.S. economy. An unexpectedly positive manufacturing report
was released today, but bond prices rose nonetheless. Bond prices typically rise
on economic weakness, and fall on strength. Today’s rise in bond prices could be
generally attributed to widespread mortgage sector and housing-related fears.

The dollar plummeted today against the euro and the yen, despite a better
than expected manufacturing report out of the U.S. this morning. Some positive
reports came out of Europe today, but nothing major to speak of. The dollar
fell on basically no news, and despite some positive numbers. The euro is
trading at record highs against the yen, up slightly for the day. The dollar
slumped against the Canadian dollar as well.

Crude oil futures were about 0.5% higher, on fears that a refinery
shutdown in Kansas will lead to a small shortage in energy supplies. Flooding
in the mid-west led to a refinery being shut down; during summer, any piece of
supply-related news has the ability to move prices. Summer is typically a
period of high demand and rising energy prices, so traders are very sensitive
to any supply-side news dealing with energy. Natural gas futures were down

Gold futures rose 1.3% today as the dollar fell against the euro. Gold
usually moves with oil and against the dollar; today’s dollar weakness led to
gold buying, as traders sought a safety haven for investments. Gold has been
trading inversely to interest rates, lately, as well. Copper futures rose 2.2%
today on falling global inventories.

Grains traded mixed today. Corn rose 0.7%, soy gained +1.9% and wheat fell


ISM manufacturing index rose to 56 in May, a
14-month high.

John Lee

Associate Editor