Bonds Continue Falling on Positive Sentiment

U.S. 10-year Treasury bonds fell further, pushing
prices to further to 3-month lows, on continued speculation that the U.S.
economy is heating up again, and the Fed will not cut rates any time soon. For
months, traders have speculated that the Fed would be forced to cut rates by the
end of 2007 to deal with a struggling housing market and slowing growth.
However, the Fed held rates at the last meeting, and promised to continue
vigilantly monitoring inflation, giving the announcement a hawkish tone. Bond
prices have fallen steadily since the announcement two weeks ago, implying that
traders took the news and wording as a positive for the U.S. economy.

The three major currencies were near flat
today on a relatively quiet trading session. No major news was released today,
save the BoJ minutes from the last meeting. The minutes held no new info or
opinions, and the euro treaded water against the yen, battling back from minor
losses early in the day. The dollar rose slightly against the yen. Also, the
U.S. dollar managed a weak bounce off recent major lows against the Canadian
dollar. Overall, today was a consolidation day for the majors.

Crude oil fell about 2% today, erasing all of
yesterday’s gains and then some. Crude fell today on trader sentiments that
with the refineries back in full gear, there will be no gasoline shortage to
start the summer. The summer months are generally a period of high energy
demand, and prices usually rise in line with that increased usage. Today’s
drop reflects speculation that U.S. refineries will be able to produce enough
gasoline to keep up with the holiday demands.

Gold fell about 0.6% on trader sentiment that
the dollar is turning around against the euro. The euro recently hit record
highs over the dollar, which led to major gold buying as a hedge against
dollar weakness. Gold usually moves inversely to the dollar and with oil;
today’s action hinted that traders sold gold in favor of the dollar, which
gained slightly over the euro. Copper fell nearly 3% on China demand concerns.

Grains fell across the board. Wheat dropped
1.5%, corn fell nearly 3% and soybeans nearly dropped 1%.


No major news to
announce for the U.S. today.

John Lee

Associate Editor