Weak Housing Report Boosts Bonds

U.S. 10-year Treasury bond prices shot higher
today, after a government report was released today that showed an unexpected
drop in new home sales. Last week’s existing home sales report was
surprisingly rosy, which helped to lower bond prices, but today’s weak report
pushed them back higher. The housing market is a key economic indicator
used by investors to gauge market and economic health. A weak housing
sector was a major focus in the U.S. during the second half of 2006, which was a
period of slow economic growth. Housing should remain in sharp focus for
the time being.

The dollar fell against the euro and the yen
today, after a weak new home sales report was released by the U.S. The yen
carry trade has been a major factor lately in the currency market, as traders
bought back the yen to cover themselves during a global selloff. The yen
had been trading at record lows against the euro and near yearly lows against
the dollar, when the selloff led to a yen rally. The yen has now moved
back towards those record lows, and fell further today.

Crude oil rose around 1%, on escalating tensions
with Iran. Geopolitical tensions with Iran led to record crude prices over
the summer, and the recent kidnapping of British armed servicemen has sparked
more concerns. Investors fear that Iran could remove its oil supply from
the world market, which would send prices sky-rocketing if it were to occur.
Crude fell over 30% from the record July highs before bouncing in January on
weather and supply issues.

Gold futures rose 1% today, in line with crude.
Gold usually trades inversely to the dollar and with crude, and it was crude
action that dominated today’s trading. Weakness in the dollar also helped
to push gold higher, as traders sought safety in the face of rising oil prices.
Gold has been trading somewhat in-line with the global equities market as well,
as traders liquidated positions in all asset classes during the global selloff.

Grain prices fell across the board today.
Soybeans fell about 1.4%, corn dropped 2.8% and wheat fell only 0.7%.


New home sales
fell to nearly 7-year lows in February.

John Lee

Associate Editor