Bonds Jump on Subprime, Bernanke Comments

U.S. 10-year Treasury bond prices shot higher after Standard & Poor’s
announcing it may cut credit ratings on billions of dollars worth of subprime
bonds. The announcement led to massive buying of government bonds, sending
prices soaring. Bonds typically rise on weakness and fall on strength, so it
remains clear that today was dominated by widespread negative U.S. sentiment.
The subprime mortgage business and a weak housing market has been weighing
heavily on the U.S. economy in the last few months, as traders continue to try
to gauge inflation compared with slowing growth and housing.

The dollar fell to record lows against the euro, and also dropped on the
yen, on overall concern that the combined effects of the U.S. weak housing
market and damaged mortgage lending sector could seriously damage the U.S.
economy. Fed Chief Ben Bernanke said that inflation expectations “remain
imperfectly anchored,” prompting a further dollar decline and more losses. The
euro fell against the yen today. Despite falling against the euro and yen, the
dollar managed a bounce against the Canadian dollar, but fell on the British
pound.

Crude oil rose nearly 1% on expectations that lower refinery capacity will
lead to a gasoline shortage, just in time for the peak summer demand schedule.
Yesterday, crude fell on similar news, on speculation that refinery shutdowns
are a sign that U.S. demand is slowing. However, today oil was up again on
supply fears. Natural gas futures rose over 4% on hot weather across the
northern U.S.

Gold rose 0.3% today as the dollar fell against the euro. Gold usually
moves inversely to the dollar and with oil; today, both factors led to gold
rising and closing up on the day. Copper futures fell about 0.4% on declining
China imports.

Grains traded higher today. Soybeans rose 2% and corn rose about 1.8%.

Economic
News

No major news to report for the U.S. today.

John Lee

Associate Editor

johnl@tradingmarkets.com