U.S. Bonds and Yen Ease Back

U.S. 10-year Treasury bonds fell for the first
time in 3 days today, after traders loosened up on subprime mortgage worries. 
The subprime mortgage sector has been in major trouble lately, as two big-name
lenders recently announced they are unable to pay their creditors. 
Investors feel that this weakness could be a sign of more trouble to come for
the U.S. economy, which was plagued by slow growth and a housing market slide
during the second half of 2006.  The housing market remains a key focus for
bond traders, and should remain so into the short-term future.  Bonds
usually rise on economic weakness and fall on strength, so today’s move could be
seen as a rest after a sharp move higher on sentiments of overall economic

The yen fell back against the euro and the dollar
today, as investors reloaded carry trades on overall positive market sentiments. 
The yen rallied during both of the recent equity selloffs, as traders bought
back the yen and exited more profitable asset trades.  The international
currency market has favored currencies backed by inflationary, positive-growth
economies, which puts Europe in the most favorable light.  The U.S. has no
real chance of raising rates soon, and Japan’s prospects are still up in the
air.  Watch for key economic reports from both countries for a hint of
strength or weakness.

Crude oil rose just under 0.5% today, after the
Energy Department reported an unexpected decline in U.S. refinery output last
week.  Oil had fallen for 3 straight days on high supplies, and signs that
OPEC does not plan to cut international output any further.  Crude oil fell
more than 30% from July record highs before bouncing back on falling supplies
and winter’s arrival.  For the last few weeks, crude has been trading in a
tight range around 60, which has served as a key level of support and resistance
for traders.  After plunging through support on Friday, crude finally
managed an anemic bounce today.  Natural gas rose 2.7% as investors bought
ahead of a perceived increase in energy use this summer.

Gold prices fell over 1%, as investors continue
to sell the metal in-line with the market.  Traders have been liquidating
all asset classes to raise cash for protection over the past weeks, as major
weakness shows itself in the equities market.  Gold usually moves inversely
to the dollar and with oil prices, but lately, gold has been trading in sync
with the equities markets, and could be seen as a general proxy for market
health.  Copper prices were up by nearly 1%.

Grain prices fell across the board today. Wheat
fell 0.75%, corn dropped around 0.5% and soybeans fell around 0.3%.


U.S. import prices
rose less than forecast last month.

John Lee

Associate Editor