Bonds March Higher on Market Malfunctions

U.S. 10-year Treasury bond prices rallied to new 4-year record highs, after
Merrill reported Q4 losses close to $10 billion. The full extent of the damage
of the credit crisis came roaring back into full view for traders today, who
then bought U.S. Treasuries as a safety from economic weakness. Bonds typically
rally on economic weakness and fall on strength, so it’s clear that traders have
taken a defensive position in relation to bonds.

The dollar fell against the yen and the euro today, after Merrill Lynch
posted quarterly losses nearing $10 billion. A string of financial writedowns
and corporate losses have led to traders selling the dollar in favor of more
profitable currencies. The dollar has been in deep trouble in the past months on
a weakening economy. The dollar is just off all-time lows on the euro, and
trading at 2-year lows versus the yen. The yen rallied against the euro today,
as traders reversed the carry trade and bought back yen.

Crude oil continued to fall today, moving lower by about 0.7%. Crude has
fallen around 10% since the first day of the year, when price hit new records of
$100. Crude has been falling on speculation that a U.S. economic slowdown would
lead to a decline in energy demand. Crude has fallen recently on similar fears,
only to bounce back quickly. Natural gas futures were down moderately.

Gold futures fell today with oil. Gold normally trades inversely to the
dollar and with oil. Today, traders ignored dollar weakness and instead focused
on falling oil prices, and sold gold. Copper futures were down fractionally.

Grains were mixed. Corn was flat while soybeans were down moderately.

The major indexes were down big today, after Merrill reported massive
losses linked to the subprime mortgage markets. The S&P fell 2.9%, the Dow fell
2.4%, and the Nasdaq dropped 1.9%. Click

to read the rest of today’s

Stock Market Recap

Economic News

U.S. housing starts fell more than
forecast last month.