Bonds Extend Rally to 6-Month Highs
U.S. 10-year Treasury bond prices rose to 6-month highs today,
on widespread concern that more losses are on the way for the big
banks. Over the past few weeks, the Fed has pumped billions of
dollars in the U.S. banking systems, as did the central banks of
Japan and the European Union. Bonds have been rising steadily
since the beginning of July, as the subprime mortgage problem
became a full-fledged credit crunch, with the Fed ultimately
bailing out the U.S. banking system by providing billions in
liquidity. Bonds normally rise on economic weakness and fall on
strength, so it’s safe to assume that most traders are taking a
defensive position in this market, buying long-term bonds for
safety.
The yen rose against the dollar and the euro today the most in 2 weeks, as
U.S. equities fell, and traders feared that more credit crunches are to come.
The yen has been trading inversely to global equities lately, as traders buy
back previously borrowed yen to cover riskier asset positions. When equity
markets rally, traders borrow yen to cash in on the profits, but when the water
turns too risky, traders then buy back the yen, sending the Japanese currency
higher. The yen rallied today, while the euro fell slightly against the dollar. The dollar
rose against the Canadian dollar and the British pound.
Crude oil futures fell fractionally, on concerns that slowing growth will
hurt energy demand. Crude has fallen fairly steadily since the beginning of
August, on widespread speculaion that economic weakness will lead to a major
decline in gasoline demand. Crude rose through the early part of the summer, in
line with expectations, but recent market turmoil has led to about a 10%
decrease in prices. Natural gas futures over 4%, ahead of tomorrow’s contract
roll-over.
Gold futures fell about 0.4% today, as global equities slid and the yen rose.
Gold normally trades inversely to the dollar and with oil; today, traders were
more focused on general speculations of slowing growth, leading to a decline in
gold demand. Copper futures fell over 1% on growing inventories.
Grains fell today. Soybeans were down fractionally, while corn fell more than
2%.
Stocks plunged on Tuesday as a wave of pessimism hit the market. Negative
economic news, inflation worries, and weakness in the financial sector led to
large losses in the major averages. Click
here to read the rest of today’s
Stock Market Recap.
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