Bonds Edge Lower, Oil Moves Up

U.S. 10-year Treasury bond prices fell today,
after a drop in jobless claims, a balmy economic growth report and weak demand
at an auction of 5-year bonds. Bonds shot up last week after the Fed
removed key hawkish wording from its announcement, but have fallen steadily
since. Bond prices usually rise on weakness and fall on strength, so
investors took today’s jobless claims and growth numbers as a positive for the
economy. Despite today’s move lower, prices have been trading within a
fairly narrow range since the end of February.

The yen fell significantly against the dollar and
the euro today, on speculation that global equities strength will lead to
continued yen borrowing and a shift back towards the carry trade. The yen
has been trading in-line with global equities, as traders buy back yen to cover
riskier asset positions. The yen had been trading at record lows against
the euro and near yearly lows against the dollar when a selloff three weeks ago
led to a major bounce in the yen. The international currency market favors
currencies backed by strong, inflationary economies, which Europe has proven
itself to be. Japan’s interest rates will probably remain low for some
time, until the country can produce consistent positive-growth numbers, and the
U.S. chances for a hike are up in the air.

Crude oil future rose over 2.5% today, as the
Iran/UK hostage situation continues to unfold. Geopolitical tensions with
Iran were a key factor in crude’s record highs over the summer, and it seems
like current problems with Iran and the west are driving prices steadily higher.
Crude fell over 30% before bouncing on supply worries and the arrival of winter
in mid-January. Natural gas futures fell about 1% on mild weather in the
Northeast U.S.

Gold fell just under 1% today, on dollar
strength. Gold usually trades inversely to the dollar and with oil, and it
was dollar action that dominated today’s trading. Traders sold the metal
in favor of dollar strength. Copper prices rose just over 0.5% on
speculation of increased demand in Asia.

Grains rose across the board today.
Soybeans rose just under 1%, wheat rose just over 1% and corn surged 1.6%.


Q4 economic growth
was confirmed at 2.5%.

Initial jobless
claims fell by about 10k to 308k last week.

John Lee

Associate Editor