Bonds, Oil Rally on Fed Funds Rate Cut
U.S. 10-year Treasury bond prices shot higher today after the Fed cut the Fed
funds rate by 25 basis points. Traders were fully expecting the cut, and many
thought it was priced into bond prices as of yesterday. As soon as the
announcement was released, bonds began rallying on underlying negative sentiment
towards a slowing U.S. economy. Bonds typically rise on economic weakness and
fall on strength, so it’s clear that bond traders have positioned themselves
defensively into the end of the year.
The euro rallied big today versus the dollar and the yen, after the FOMC cut
rates by 25 basis points. The Fed cut came as no surprise to traders, but the
yen surged on the news, as the cut pointed to underlying U.S. economic weakness.
The euro fell slightly on the dollar, but most of the action surrounded yen
movement. The yen has been a major focus lately as well, on the global carry trade.
Traders have been buying and selling yen based on perceived risk in other
markets. The yen has been rallying on equity weakness and falling on strength.
Crude rallied over 2%, on speculation that a Fed rate cut will boost oil
demand. The rate cut should theoretically boost the U.S.’s slowing economy, and
energy demand should then increase as the economy begins growing again. Crude
has been falling dramatically over the past few weeks on concern that the
slowing U.S. economy will have major effects on crude prices. Natural gas
futures were up just under 1%.
Gold futures fell about 0.4% today. Gold normally trades inversely to the
dollar and with crude oil, and today, gold seemed to move by itself. Copper
futures fell over 1%.
Grains were higher today. Soybeans gained 0.8%, while corn rallied about