Bonds, Yen Fall on Global Strength

U.S. 10-year Treasury bonds fell today, as the
equities markets continue to stabilize, and traders bet that the Fed will hold
rates this week. Bonds shot higher three weeks ago on a global equities
selloff, as investors looked for safety in the long-term government bonds.
Bonds move higher on economic strength and lower on weakness, so investors are
taking this equities bounce as a positive for the market, which is driving bond
prices lower.

The yen sagged against the dollar and the euro
today, on speculation that the Bank of Japan will hold rates at 0.5% during this
week’s central bank meeting. The yen has been moving inversely with the
equities markets over the past weeks, as equity strength means a return to the
carry trade and more yen borrowing. The yen gained strength in the past
few weeks as the markets sold off, forcing traders to buy back the yen and exit
riskier asset trades. The international currency market has favored
currencies backed by strong, positive-growth economies with a need to raise
rates. Both Japan and the U.S. have little chance of a rate-hike any time
soon, while
Europe’s growth and inflation should lend itself to more hikes this year.

Crude oil futures fell about 1% on weak demand,
due to slow refinery production. Many refineries shut down, or
significantly slow output, during this season, as the industry gears up for
summer, which is usually characterized as a period of high fuel demand.
Crude has fallen fairly steadily since breaking support at $60 last Monday,
after trading around 60 for a few weeks. Natural gas fell over 1% to
2-month lows on low demand stemming from continued mild weather.

Gold rose fractionally today. Gold usually
moves inversely to the dollar and with oil, but gold has been trading tightly
in-line with global equities markets lately. As equities show weakness,
investors raise cash by liquidating all asset classes, including gold, which
sends the metal lower. Copper rose 0.4% to 3-month highs today, on reports
of global falling inventories.

Grain prices traded mixed today. Soybeans
rose nearly 1%. Corn fell close to 0.5% and wheat dropped just over 1%.


U.S. Homebuilder
confidence fell this month, the first such decline since September.

John Lee

Associate Editor