Bonds, Yen Fall on Global Strength

By John Lee

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%.

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