Bonds Sink on Positive Housing Report

U.S. 10-year Treasury bond prices fell today, on
an unexpectedly positive pending-home sales report. There was a 0.7%
surprise jump in signed agreements in February, after a 4% drop off in January.
Bonds prices have been trading in a fairly tight range over the last month, with
today’s move leaving prices at 1-month lows. Bond prices and the yield are
heavily influenced by most housing reports, as traders use the housing sector as
a broad indicator of economic health. Interest rate futures are showing
about a 20% chance of a rate cut by August.

The yen fell against the euro and the dollar to
1-month lows, as strength in global equities led to yen borrowing. Traders
borrowed the yen to pursue more profitable assets, in what is commonly known as
a “carry trade.” The yen has been trading somewhat inversely to global
equities lately, as traders buy back the yen to protect themselves from equity
weakness. The international currency market has favored positive-growth,
inflationary economies, which Europe has proven itself to be. Japan has
consistently reported weak economic numbers, while the future of the U.S.
economy is still up in the air.

Crude oil fell nearly 2% on speculation that the
UK/Iran hostage situation will be resolved soon. Traders fear that Iran
will remove its oil supply from the world market, were there to be a major
conflict. Similar geopolitical worries were a primary factor in July’s
record crude prices. Crude churned for weeks around the key resistance
levels at $60 a barrel, until the hostage situation boosted prices. Today
marks the first true correction since the rally started, and crude prices will
probably be closely linked to that geopolitical scene until further notice.
Natural gas fell about 2.5% on ample supplies and warm weather.

Gold was basically flat today. Gold usually
trades inversely to the dollar and with oil, but it seems as though neither of
those primary contributing factors could move the precious metal at all.
Copper rose 4% to 5-month highs on a worker’s strike in Peru, and lower
inventories in London.

Grains fell across the board. Soybeans fell
nearly 2%, wheat fell about 1.7% and corn dropped over 2%.


Pending sales of
existing homes rose unexpectedly in February.

John Lee

Associate Editor