Bonds Give Up Gains to Close Lower
U.S. 10-year Treasury bonds fell today, giving up gains after pushing further
to near 6-month highs. Bonds initially rose during the morning, on spill-over
fears from yesterday, that U.S. economic growth is slowing. Some traders are
calling for a widespread economic recession, trigging bond sales and rising
prices. However, today’s equity market action in the U.S. led to lower bond
prices, as traders eased off of overly pessimistic economic views (bullish for
bonds). Bond prices typically rise on economic weakness and fall on strength, so
it’s safe to say that traders are speculating to the downside, as bond prices
teeter towards yearly highs.
The yen fell after 2 straight days of rallying, as U.S. equities managed to
stay afloat today, forcing traders to unwind carry trades. The carry trade
occurs when traders borrow yen to use to buy more risky assets, like equities;
when equity markets fall, the yen rallies as traders buy back the borrowed yen
to cover losing positions. Lately, the yen has been trading inversely with
global equity markets, on the carry trade dynamic. The euro also rose against
the dollar today. In general, global equity markets have had a large hand in
directing currency movements over the past few weeks.
Crude oil futures rose over 2% today, after the Energy Department announced
that gasoline inventories fell more than expected last week. Crude has been
falling since the beginning of August, on fears that slowing U.S. growth will
lead to less demand for energy and oil consumption. Oil rose, as usual, through
the first half of the summer, but as the subprime meltdown spread, traders began
to sell oil on economic fears. Natural gas futures fell about 3.5% on
comfortable supply levels.
Gold futures rose slightly today as the dollar fell against the euro. Gold
normally trades inversely to the dollar and with oil, which is exactly what
happened today. Traders are betting that the Federal Reserve will cut rates
during September’s meeting, which is also helping to drive gold prices higher.
Copper futures were up about 1%.
Grains were mixed today. Soybeans rose about 0.4%, while corn fell 1.4%.
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