Bonds Rise As The Fed Holds
U.S. 10-year Treasury bonds rose today, after the Fed decided
to leave rates unchanged, and said that inflation is likely to moderate.
Rates fell yesterday as traders anticipated a hawkish statement from the Fed,
hopeful that the comments would reflect inflationary worries in the near future.
Bonds shot up in June when the Fed initiated the pause on slowing economic
growth, and then slid 3 weeks ago when the Fed minutes from the September
meeting showed a lingering fear of inflation. Investors have pared bets
that the Fed will begin to cut rates during the next year, reversing recent
speculation that the Fed would begin to initiate cuts as early as this year.
The dollar fell against the yen and the euro today, after the
Fed held rates and said that inflation concerns should ease in the future.
The dollar had surged against the major currencies in recent sessions, on
speculation that the Fed would make hawkish comments about inflation.
However, the continuing hold and lack of inflationary comments led to weakness
in the dollar, in a global currency market dominated by interest rate and
inflationary news. The major currencies have traded heavily on
inflationary and growth news through the summer, and look to continue the trend
into the new year.
Crude oil futures rose 3.4% to close at $61.37 a barrel today,
after U.S. inventories showed an unexpected drop in crude supplies. The
decline in reserves was the most since July, and with OPEC cuts in the air,
investors took this chance to initiate buying in the futures contract.
Crude is down nearly 25% from its July highs, in a summer filled with
geopolitical tension that fueled supply fears. OPEC has recently
emphasized that production cuts to the global supply would be necessary to stem
the falling price of crude. Natural gas rose 8.5% today as a cold front
tightens its grip on the eastern U.S. Natural gas is used to heat houses,
and cold weather usually correlates with a rise in price for the energy
contract.
Gold futures rose 0.5% as energy prices rose, prompting buying
in the safety commodity. A rise in energy prices usually initiates demand
for the commodity metal, which is used as a hedge against inflation.
Weakness in the dollar also helped to push gold higher, in another instance of
safe-haven buying to hedge against a falling dollar. Copper was basically
flat today.
The softs traded mixed today. Cocoa was basically flat,
coffee fell 0.3%, orange juice rose 1.4% and sugar rose 1.8%.
Grains also traded mixed. Corn was up 0.8%, wheat fell
1.1%, soy fell 0.2% and oats rose 1.1%.
Meats traded fractionally higher, with cattle flat and
porkbellies up fractionally.
Federal Reserve Leaves Interest Rates Unchanged Once Again (full
story).
Existing Home Sales Fall More Than Expected In September (full
story).
John Patrick Lee