Bonds Spike on Subprime Worries

U.S. 10-year Treasury bonds spiked higher today,
pushing towards recent highs on major subprime mortgage sector weakness.
For the second day in a row, a subprime lender announced that it would be unable
to pay off creditors as the risk of lending to people with bad credit continues
to rise. The subprime sector has been experiencing major weakness in the
last few weeks, and this has led many investors to feel that the housing sector
could be on the verge of more difficulties. Weakness in the housing sector
during the second half of 2006 led to high bond prices and general weakness in
the U.S. economy. Bond prices usually rise on weakness and fall on
strength, so investors are taking recent subprime weakness as a negative for the

The yen rose against the dollar and the euro, as
traders began to unwind yen carry trades, in a move that led to a spike in the
yen just last week. With investors fearful of global economic weakness,
traders bought back yen and exited more profitable asset trades. The yen
has been under serious pressure in the last months, having reached record lows
against the euro and yearly lows against the dollar before bouncing on a global
selloff. The international currency market has favored currencies backed
by inflationary, positive-growth economies, which Europe has proven itself to
be. The U.S. will most likely hold during the March Fed meeting, while
Japan’s chances of a rate hike remain to be known.

Crude oil fell about 1.5% today, after officials
for OPEC nations said that the international organization will most likely keep
output levels the same during a meeting this week. Crude broke through
crucial support at 60 yesterday, on similar OPEC concerns. Late last year,
OPEC initiated a daily withholding of nearly 2 million barrels a crude, to stem
falling prices. Crude fell over 30% from July record highs, before
bouncing on winter’s arrival. A relatively warm winter has also helped to
keep crude prices low. Natural gas rose fractionally after falling for the
last 4 trading sessions.

Gold futures fell fractionally, as traders exited
all asset classes on perceived economic weakness from the subprime sector.
Gold usually trades inversely to the dollar and with oil, but lately gold has
moved mostly in-line with the equities market, selling off and bouncing back
at the same time. Copper fell nearly 1% on perceived weakness in U.S.

Grains fell across the board today.
Soybeans fell over 1%, wheat dropped nearly 1% and corn fell about 0.6%.


Retail sales rose
less than expected in February; analysts blamed the unusually cold weather.

John Lee

Associate Editor