Bonds Fall on Positive Jobs Report

U.S. 10-year Treasury bond prices dropped today
after a stronger-than-expected jobs report, which stated that the U.S. economy
added about 97,000 jobs last month. Bond prices shot up significantly
after a global equities selloff, on fears that weakness in the stock markets
would extend to the broader U.S. economic scene and force the Fed to lower
interest rates. Bonds usually move higher on economic weakness, and lower
on strength. Today’s fall puts bonds near price levels last week just
before the selloff. Today’s job report seemed to break down major support
after a bullish week last week. Watch for housing and manufacturing to
remain a key indicator for U.S. economic strength.

The dollar rose against the euro and the yen
after today’s strong jobs report. The unexpectedly strong report forced
traders to pare bets that the Fed will cut rates this year. The
international currency market favors currencies backed by inflationary,
positive-growth economies with a pressing need to raise rates to combat
inflation; economic conditions leading to rate cuts are usually negative.
The yen has been a major currency focus lately, having reached record lows
against the euro and yearly lows against the dollar. A major global
equities selloff led to a rally in the yen, as traders unwound carry trades, in
which the yen is borrowed to invest in more profitable assets.

Crude oil fell 2.4%, but held above $60 a barrel
today, on forecasts that warm weather will remain in the Northeastern U.S. for
most of next week. Crude has been trading in a tight range just above 60
for weeks now, after breaking through crucial resistance on falling U.S.
supplies. Warm weather equates to less energy usage to heat homes, and
lower energy prices across the board. Natural gas fell 2.3% on similar
weather demand issues.

Gold fell 0.5% as the dollar strengthened on the
global market. Gold usually trades inversely to the dollar and with oil,
and it was dollar action that dominated today’s gold trading. Over the
past week, gold has been trading in-line with the global equities market.
With the dollar on the rise, investors shed gold positions in favor of dollar
strength. Copper prices fell nearly 2% after a major inventory spike in

Grains traded fractionally mixed today.
Wheat rose 0.1%, soybeans rose fractionally while corn fell over 1%.


The U.S. economy
added 97,000 jobs last month, compared to expectations of 95,000.

John Lee

Associate Editor