Bonds Sink on Philly Fed

U.S. 10-year Treasury bond prices fell further today, after reversing a short
rally yesterday. Bonds fell yesterday on no major news, and today’s strong
Philly Fed index report helped to keep pushing bond prices lower. Bonds fell
steadily through the month of May on a string of turnaround reports and hawkish
Fed comments, but traders starting buying bonds around their 11-month lows, to
take advantage of the extended conditions. With inflationary pressures rising,
though, it looks like bonds could have some more room to fall before major
buyers step into the market.

The dollar gained on the yen, but remained mostly flat against the euro
today, after an unexpectedly positive Philly Fed manufacturing index was
released. Analysts were looking for a reading of 7.0, but the actual index
came in at 18.0. Despite the exceptionally strong reading, the dollar did not
surge against the euro. The yen has been a major focus for currency
traders for the last few days, as the Japanese currency failed to start a
meaningful rally off of record lows against the euro, and yearly lows against
the dollar. The euro was also basically flat against the yen today. The dollar bounced against the Canadian dollar today,
after a weak retail sales number was released in Canada and a strong Philly
Fed index number.

Crude oil fell around 0.3% today, on mixed news of a possible strike in
Nigeria and surging oil reserves. Yesterday’s Energy Department report showed
an unexpected jump in U.S. crude supplies, which sent crude prices
dramatically lower, though crude recovered some losses. Crude initially jumped
higher today on Nigeria fears, but as the day went on, more traders sold oil
in favor of calmer, more positive sentiments concerning comfortable crude
supplies. Natural gas futures fell 0.5% on balmy supplies.

Gold futures fell about 1% today, as bond prices continued to fall today.
Gold usually trades inversely to the dollar and with oil, but lately gold
prices have been closely linked to interest rates. With rising interest rates,
less traders use gold as a safety asset, instead turning to government bonds.
Copper futures fell just over 1% on high levels of global supplies.

Grains traded mixed today. Soybeans fell 2.6%, corn dropped 2.2% and wheat
gained about 0.3%.


Philly Fed index jumped to highest level in
more than 2 years.

Leading indicators rose 0.3%.

John Lee

Associate Editor

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