Bonds Jump on Mortgage Worries

U.S. 10-year Treasury bonds continued to bounce off of 11-month lows today,
on overall anxiety concerning high risk assets. Last week, Bear Stearns revealed
massive losses in 2 separate multi-billion dollar hedge funds, whose assets were
closely linked with subprime mortgages. Bonds usually fall on strength and rise
on weakness, so traders bought bonds today as a safety against short-term market
weakness, evident in the mortgage sector and housing markets. Bonds fell through
May on positive turnaround reports, but prices have been rising since hitting
extended lows about 2 weeks ago.

The yen rebounded from record lows against the euro, and also pushed back
against the dollar, as investors across the globe eased off the carry trade on
sentiments that Japan could begin raising rates in the medium-term. A Chinese
bank official said that he did not rule out a coming rate hike for Japan,
which sent the yen higher as traders sold positions entered with borrowed
Japanese currencies. The euro has been surging over the yen lately, hitting
new highs on Friday. The euro fell back slightly against the dollar. The
dollar was also up slightly over the Canadian dollar.

Crude futures were slightly lower today, after a Nigerian oil strike
ended. Crude trades very sensitively to news, evidenced in crude’s reactions
to Middle Eastern conflicts, and any other possible disruption of crude
supplies. Crude has been rallying fairly steadily off of recent lows around
$60 a barrel. Natural gas futures fell 2.6% on comfortable supplies and mild
weather in the U.S.

Gold futures fell about 0.6% on euro weakness versus the dollar. Gold
usually trades inversely to the dollar and with oil; both factors helped to
drive the precious metal further, as traders dumped gold in favor of
speculative dollar strength. Copper rose fractionally after a reasonable U.S.
housing report pointed to steady demand.

Grains traded mixed today. Soybeans rose 0.9%, wheat fell 0.6% and corn
fell 3.6%.


U.S. existing home sales fell to the lowest
levels in nearly 4 years last month.

John Lee

Associate Editor

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