Bonds Rise, Yen Bounces Back

U.S. 10-year Treasury bonds shot higher today,
moving to 2-month highs, as subprime mortgage pressures and a decline in
emerging markets assets led investors to turn to bonds. The risk of owning
subprime mortgage bonds moved to new record levels for the eighth day in a row.
Traders bought bonds today as a safe-haven against major losses in the emerging
markets, specifically a dramatic selloff in Chinese equities. Bond prices
usually move higher on economic weakness and lower on strength, so traders are
taking these two major factors as negatives for the U.S. economy. The
housing market continues to remain in focus; an existing home sales report was
released today which was surprisingly positive, but that did not help to keep
bond prices down.

The yen surged against the dollar and euro today,
and the dollar also sagged against the euro. The yen rose the most in over
a year against the dollar, as traders relaxed bets against the Japanese
currency. The yen bounced after weeks of extreme weakness, which saw the
yen at record lows against the euro and yearly lows against the dollar.
The international currency market has favored currencies backed by inflationary,
positive-growth economies, which Europe has proven itself to be. General
economic weakness in Japan has led to few hikes and major currency weakness.

Crude oil rose fractionally today, erasing losses
after a gap-down at the open. After gaining yesterday on inventory
speculation, oil rested near its highest levels this year. Crude struggled
to break $60 a barrel for weeks before breaking through last Thursday on
diminishing fuel supplies in the U.S. Traders are waiting on the inventory
report tomorrow before pushing prices any higher. Natural gas futures fell
over 2% as traders speculated that warm weather to come will keep any supply
issues at bay.

Gold futures fell about 0.5% on concerns that
weakness in the Chinese markets will equate to lower demand for commodities.
Gold usually moves inversely to the dollar and with oil, but it was emerging
market action that dominated today’s gold trading. Gold fell on worries
that major losses in China and other Asian markets will significantly dampen
demand for all commodities. Copper fell nearly 3% on similar concerns.

Grains fell across the board today. Wheat
fell over 2%, corn fell over 3% and soybeans fell about 2%.


Durable goods
orders fell more than expected in January.

Sales of existing homes rose more than expected,
and prices dropped.

John Lee

Associate Editor