Bonds Extend Rally into Yearly Highs

U.S. 10-year Treasury bonds pushed further into yearly highs, as more
write-down announcements continue to hit the market. In the past weeks, a number
of major U.S. banks and financial institutions have announced major losses, and
exacerbated fears of a full-blown economic recession. Bonds typically rise on
economic weakness and fall on strength, so it’s clear that traders have taken a
defensive position in relation to bonds.

The dollar hit new record lows against the euro before recovering losses and
trading near flat on the day. The dollar also plummeted against the yen, on
widespread concern over the health of the U.S. economy. Today, more credit
writedowns were announced, and traders sold the dollar on widespread, underlying
U.S. weakness. The dollar has been facing major trouble in the past few weeks,
after 2 consecutive rate cuts by the Fed, and growing losses in the housing and
financial sectors. The yen also surged on the euro, as traders reversed carry
trades, buying back borrowed yen. The dollar sank against the Canadian dollar
and British pound today.

Crude oil futures were moderately higher today, after a pullback yesterday
from new record highs. Crude has been moving into new records since September,
and traders are watching for the crucial $100 benchmark to be broken. Middle
East tensions and high U.S. demand have been the main factors behind crude’s
rally over the past few months. Natural gas futures rose about 3%.

Gold futures fell fractionally today. Gold normally trades inversely to the
dollar and with oil, but today seemed like more of a rest day for the metal
future. Gold mostly ignored the sinking dollar and rising oil prices, to close
lower. Copper futures also fell, down about 1.7%.

Grains were mixed today. Soybeans rose 1.4%, while corn fell 0.7%.

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