Bonds Extend Rally on Growth Concerns

U.S. 10-year Treasury bond prices rose today, as traders continued to worry
that the recent credit crunch will spread to other areas of the economy, causing
a growth slowdown. Bonds have been on the rise lately, as the subprime mortgage
crisis became a widespread credit crunch, and the equity markets plummeted as a
result. On Friday, the Fed unexpectedly cut the discount rate for banks by 1/2 a
percentage point, making it easier for banks to borrow from the government if
necessary. Bonds typically rise on weakness and fall on strength, so it’s safe
to say that traders are taking these past few weeks as major negatives for the
U.S. economy as a whole.

The yen fell today, as global stocks rebounded, and carry trade investors
resumed borrowing yen to buy riskier assets. The carry trade occurs when traders
borrow yen to purchase riskier, more profitable assets; in times of heightened
risk, traders will buy back the borrowed yen to cover positions, which sends the
yen higher. The yen rallied last week as global equities were hit hard by the
credit crunch. Today, the yen slipped in early trading, but fought back against
the dollar and euro to close only slightly lower. The euro fell slightly against
the dollar. The dollar was slightly down against the Canadian dollar and the
British pound.

Crude oil futures fell about 1.4% today, on worries that slowing economic
growth will lead to slow energy demand. Traders also sold crude on forecasts
that Hurricane Dean will miss major oil production facilities in the Gulf of
Mexico. Crude has been falling since the beginning of August, on concerns that
U.S. credit and housing problems will lead to an overall growth slowdown, which
would mean less energy demand and use. Summer is usually a period of rising oil
prices, but overall negative market sentiment is keeping oil prices down.
Natural gas futures fell 15% on the benign Hurricane Dean forecasts.

Gold futures fell fractionally today. Gold prices fell on overall concern
that the economy is slowing, and that there will be less demand for the safety
commodity. Last week, gold plummeted with global equities, as traders dumped
gold to raise cash to cover losses. Copper futures rose about 0.5% on
speculation that the recent Fed cut will lead to a growth rebound.

Grains rose today. Soybeans were up fractionally, and corn rose over 1%.

After a morning of hovering around the unchanged line, the markets sold
off before rallying back into the green in the final hour. The volatility of the
current market shows how uncertain investors are in the Fed’s rate cut. Click

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