Bonds Rally to New Highs on Economic Outlook

U.S. 10-year Treasury bond prices rallied to new 3-year record highs today,
as credit and housing worries continue to plague the markets, and a string of
negative retail reports lead to more recession talk. A number of major banks and
financial institutions have been writing down tens of billions of dollars worth
of credit and subprime mortgage related losses, and many investors are looking
for those losses to spread to other areas of the economy.

The dollar fell to 2-year lows versus the yen, and moved towards new all-time
record lows versus the euro today, as traders sold the dollar on more bad news
out of the U.S. Citigroup announced a $18 billion writedown, while retail sales
also led to widespread selling in the U.S. equity markets. Many traders are now
calling that the U.S. is headed directly towards a full-on recession; some say
the recession is already in effect. Either way, the dollar has been taking a
beating over the last few months, and that doesn’t look to change any time soon.
The euro sank versus the yen, as traders bought the Japanese currency on U.S.
equity weakness. The so-called carry trade has been a major force in yen trading
in the past months.

Crude oil futures dropped more than 2% today, on speculation that U.S.
economic weakness will lead to a major slowdown in energy demand. Crude has
dropped on similar fears in the past. Crude futures are trading just off
all-time record highs at $100 a barrel, and many traders are looking for oil
prices to move only higher. Natural gas futures were also down moderately.

Gold futures fell back from record highs today, as crude also dropped. Gold
normally trades inversely to the dollar and with crude oil, and today traders
focused on falling oil prices, and sold gold accordingly. Gold ignored moderate
dollar weakness. Copper fell the most in 6 weeks on negative U.S. economic
outlooks.

Stocks tumbled today, as the major indexes opened lower and fell through
the session. Massive corporate writedowns and disappointing retail numbers led
to selling across the board today, as investors continue to reel from subprime,
housing and economic worries. Click

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Economic News

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