Bonds Rally on Negative U.S. Sentiment

U.S. 10-year Treasury bond prices rallied today, and pushed towards 3-year
record highs. Bond prices rose, in part, after a Fed President said that the
economy is slowing. Most traders are expecting the Fed to cut rates for the
third time next week, when the Fed holds its final policy statement of the year.
Bonds typically rise on economic weakness and fall on strength, so it’s clear
that traders have positioned themselves defensively in relation to bonds,
heading to the end of the year.

The yen surged against the dollar and the euro today, as traders exited the
carry trade on global equity risk worries. Traders buy and sell yen based on
perceived market risk, buying yen on market weakness and selling on strength.
The so-called carry trade has been a major factor in the currency market over
the past few months, as the credit crisis has rocked the markets. The dollar
fell against the euro today, but most of today’s action surrounded yen strength.

Crude oil bounced slightly today, after recording major losses last week.
Crude prices fell more than 10% last week, mostly on sentiment that a slowing
U.S. economy will mean slowing energy demand. Last week’s energy inventory
report also hinted towards such a slowdown, and crude has reacted by falling
dramatically in a very short period of time. Natural gas futures fell over 1%.

Gold futures rose about 1%, in line with a weakening dollar. Gold normally
trades inversely to the dollar and with crude oil, and today, gold traders
focused on dollar weakness versus the euro and the yen. Traders bought gold in
favor of a falling dollar. Copper futures fell about 3.5% today.

Grains were mixed. Soybeans were fractionally lower, while corn rallied 0.5%.

Stocks declined on Monday, after last week’s strong performance. Earlier
today, the November ISM’s Manufacturing Index continued to decline, although it
remained above 50, indicating economic expansion. Click

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