Bonds Steady, Dollar Falls

U.S. 10-year Treasury bonds were little changed today, after a U.S.
homebuilder confidence fell to the lowest levels in over 15 years. Bonds have
fallen steadily since May on a string of turnaround reports and hawkish language
from the Fed. Last week, bonds bounced on no major negative news; some traders
feel that the extended, oversold condition led to a correction. The housing
starts report due tomorrow should shed more light on the housing market in the
U.S., and should provide some fodder for volatility and movement in the bond

The euro moved to new record highs over the yen, and also rose against the
dollar, on speculation that European interest rates will continue to rise this
year. Traders across the world are betting that the ECB will be forced to
raise rates at least once this year, and that the carry trade will continue to
affect the yen negatively. The dollar had been rebounding versus the euro for
the month of May and into June, but some moderately weak reports last week
helped to boost the euro. The dollar rose against the yen, on broad Japanese
weakness. Despite falling against the euro, the dollar bounced on the Canadian

Crude oil jumped 1.5%, hitting 9-month highs on supply worries, on reports
that Nigerian oil workers are planning to strike later this week. Crude prices
are extremely sensitive to any supply concerns, specifically in the Middle
East and Nigeria. Rebels in Nigeria have attacked the oil pipelines in the
past, and traders are concerned that a serious attack could significantly
affect global supplies. Tensions also seem to be rising in the Middle East,
with the recent Gaza fighting; traders are no doubt keeping a close eye on
that region of the world as well.

Gold rose 0.2% today, in line with oil and the dollar decline. Oil usually
trades with oil and against the dollar; today’s both of those scenarios played
out, but oil did not move as strongly as its counter-assets did. Gold recently
slipped on interest rate worries, but a weak dollar and rising oil prices
should keep gold moving higher.

Grains traded mixed today. Soybeans rose 1%, wheat fell 0.6% and corn
dropped 1%.


U.S. homebuilder confidence fell to 16-year
lows in June.

John Lee

Associate Editor