Bonds Head to 1-Month Highs

U.S. 10-year Treasury bond prices rose to the
highest levels in over a month today, on a rise in jobless claims and a decline
in U.S. industrial production. Bonds shot higher yesterday after Fed Chief
Bernanke told Congress that inflation pressures should ease through the year.
The move higher today in prices highlights investor sentiments that the U.S.
economy is weak and poised for a correction or recession. Bond prices
usually rise on weakness and fall on strength, meaning traders took the two
reports that came out today as a negative sign for the economy. More
investors are betting that the Fed will be forced to reduce rates before the
year is out, whereas earlier in the year, many were speculating that rate cuts
were not necessary.

The dollar fell the most in eight months against
the yen today, and fell slightly against the euro, on a weak industrial report,
and a separate report that showed a significant decline in foreign investments
in U.S. equities and bonds. The yen also surged significantly against the
euro, pushing off of near-record lows. The international currency market
has favored currencies backed by inflationary, positive-growth economies, which
Europe has proven itself to be. Japan has had trouble producing consistent
positive reports, which has led to major weakness in the yen.

Crude oil futures closed down fractionally today
after recovering from moderate losses early in the session. Crude has been
testing support and consolidating for a few weeks at resistance around $60 a
barrel. Prices have risen nearly 20% since mid-January; prices fell over
30% from record July highs on high levels of reserves and a late-arriving
winter. The U.S. recently announced plans to double its strategic reserve,
which has also helped to push prices higher. However, prices have
struggled to break through 60. Natural gas futures rose fractionally as
traders took advantage of the relatively low prices.

Gold traded fractionally lower for the day,
paring early losses on falling energy prices. Gold usually trades
inversely to the dollar and with oil, and these two factors competed during
today’s session to leave gold near black. Falling oil prices at first led
gold lower, but dollar weakness helped to bring up the metal’s value.
Traders use gold as a hedge against dollar weakness and rising energy costs.
Copper prices rose just over 3%.

Grain prices traded mixed today. Soybeans
rose just over 1%, wheat rose about 0.4% and corn fell fractionally.


investments into the U.S. decreased to the lowest levels in 5 years in

U.S. industrial output fell
0.5% in January, the most in over a year.

John Lee

Associate Editor