Bonds Continue Falling on Positive Sentiment

By John Lee

U.S. 10-year Treasury bonds fell further, pushing prices to further to 3-month lows, on continued speculation that the U.S. economy is heating up again, and the Fed will not cut rates any time soon. For months, traders have speculated that the Fed would be forced to cut rates by the end of 2007 to deal with a struggling housing market and slowing growth. However, the Fed held rates at the last meeting, and promised to continue vigilantly monitoring inflation, giving the announcement a hawkish tone. Bond prices have fallen steadily since the announcement two weeks ago, implying that traders took the news and wording as a positive for the U.S. economy.

The three major currencies were near flat today on a relatively quiet trading session. No major news was released today, save the BoJ minutes from the last meeting. The minutes held no new info or opinions, and the euro treaded water against the yen, battling back from minor losses early in the day. The dollar rose slightly against the yen. Also, the U.S. dollar managed a weak bounce off recent major lows against the Canadian dollar. Overall, today was a consolidation day for the majors.

Crude oil fell about 2% today, erasing all of yesterday's gains and then some. Crude fell today on trader sentiments that with the refineries back in full gear, there will be no gasoline shortage to start the summer. The summer months are generally a period of high energy demand, and prices usually rise in line with that increased usage. Today's drop reflects speculation that U.S. refineries will be able to produce enough gasoline to keep up with the holiday demands.

Gold fell about 0.6% on trader sentiment that the dollar is turning around against the euro. The euro recently hit record highs over the dollar, which led to major gold buying as a hedge against dollar weakness. Gold usually moves inversely to the dollar and with oil; today's action hinted that traders sold gold in favor of the dollar, which gained slightly over the euro. Copper fell nearly 3% on China demand concerns.

Grains fell across the board. Wheat dropped 1.5%, corn fell nearly 3% and soybeans nearly dropped 1%.

Economic News
No major news to announce for the U.S. today.