Bonds Fall, Oil Back Above $60

U.S. 10-year Treasury bonds fell today, as
traders eased off bets that the Fed would cut interest rates in June. The
Fed removed some key wording in yesterday’s announcement, which many traders
took as a sign that the central bank was preparing to cut rates soon.
However, traders seemed to settle down a bit today, and bond prices moved lower
as bond traders chose to highlight the Fed’s remaining focus: inflation.
Bonds usually rise on economic weakness and fall on strength, so traders were
betting on future strength today as bond prices fell. Interest rate
futures that the Fed would cut rates by June also fell to around 30%.

The dollar surged against the euro and the yen
today, as traders went back on yesterday’s bets of imminent U.S. economic
weakness. Language issues in the Fed announcement caused the dollar to
fall against the euro on rate-cut fears yesterday, but today investors bet on dollar
strength. The yen has been a major focus lately, as volatility in
international equities has led to an unwinding of the yen carry trade. The
yen had been trading at record lows against the euro, and near yearly lows
against the dollar, when two major selloffs over the past few weeks led to a
jump in yen strength. The euro remains the strongest currency, with rate-hikes
nearly guaranteed for this year, while the yen and the dollar still seem to be

Crude oil jumped 2.6%, to close at $61.18, on
speculations that U.S. refineries will start buying more crude to gear up
production rates for summer. Summer usually leads to higher energy usage
and prices, and investors speculated that a refinery slowdown in effect now will
lead to more production soon. Crude broke through crucial support at 60
last Monday and fell through the week, but supply issues and seasonal buying has
brought prices back above the watermark. Natural gas rose over 2% as
traders took advantage of low prices ahead of the seasonal shift to more energy

Gold rose about 0.6%, as traders bet that rising
energy costs will lead to gold buying, to hedge against inflation. Gold
usually moves inversely to the dollar and with oil, and it was oil action that
dominated today’s gold trading. Gold, for the last few weeks, has also
been moving in-line with global equities, as traders liquidated all asset
classes to raise cash for protection. Copper futures rose nearly 2% to
3-month highs on signs of increased demand from China.

Grains traded mixed today. Soybeans rose
about 0.7%, wheat rose nearly 3% while corn fell fractionally.


U.S. leading
indicators fell 0.5% in February, following a 0.3% drop in January.

John Lee

Associate Editor