Bonds Rise on Pervasive U.S. Weakness

U.S. 10-year Treasury bond prices inched higher today, on overwhelming
concern for the U.S. economy and dollar weakness. China announced plans to
diversify its foreign exchange reserves, and corporate losses in the U.S. also
helped to shake investor sentiment. Bonds typically trade higher on economic
weakness and lower on demand, so it’s clear that traders have taken a defensive
position relative to bonds, going into the end of the year.

The dollar fell to new record lows against the euro today, and to the lowest
in over 20 years versus the British pound. China announced plans to diversify
the nation’s foreign exchange reserves, and traders assumed that meant China
would be selling the dollar. In addition, a major U.S. automaker reported
unprecedented losses in Q3 of $39 billion. The dollar has been in major trouble
over the past months, as the credit crisis unraveled, and housing continued to
slow. There seems to be no end in sight to dollar weakness at this point. The
yen rallied on the euro. The dollar also slumped on the Canadian dollar.

Crude oil futures fell about 0.8%, amid continuing worries about the Middle
East and supply concerns. Crude prices hit $98.62 a barrel today, before falling
back on a positive energy reserves report from the U.S. Crude futures show no
real sign of slowing its major rally, which started at the end of August.
Natural gas futures fell about 3%.

Gold futures rose 1.6% today, on pervasive dollar weakness and rising oil
prices. Gold futures normally rise on dollar weakness and rising energy prices,
which is exactly what happened today. Traders bought gold in favor of dollar
weakness, and also as a hedge against high oil prices. Copper futures fell about

Grains were lower today, Soybeans fell about 0.5%, while corn dropped 0.3%.

Economic News

U.S. worker productivity grew more than
expected last quarter.