Bonds Fall Further, Despite Weak GDP

By John Lee

U.S. 10-year Treasury bond prices fell today, after bouncing yesterday, on continued positive U.S. economic sentiment. The Chicago PMI index came in stronger than expected today, which helped bonds to overcome negative momentum from a GDP number that came in weaker than expected. Bonds have been falling steadily since the Fed kept rates at 5.25% at the beginning of April, and emphasized continued monitoring of inflation.

The euro rebounded against the dollar today, and pushed back towards record highs against the euro. A positive Chicago PMI number boosted investor sentiment to back the U.S. dollar, despite an initially weak morning against the euro. The dollar has been making a major turnaround since the beginning of May, on a string of turn-around economic reports and hawkish wording from the Fed. Despite losses against the euro, the dollar pushed higher against the yen, after two days of pressure from the yen, as the carry trade unwound. The dollar also continued to fall against the Canadian dollar, extending the move lower.

Crude oil futures rose 0.7% today, after the Energy Department released inventories that showed a decline in crude reserves. Traders are anxious right now about the coming summer months, which are typically a period of high demand and higher energy prices. Two days ago, crude fell about 3% on speculation that U.S. reserves could handle any major spike in demand, but two days later, prices are about back to where they started. Natural gas futures were basically flat, after the government reported an increase in supplies.

Gold rose over 1% today, on euro gains over the dollar. Gold futures usually trade inversely to the dollar and with oil; today's dollar action led to gold buying, as traders covered dollar positions to buy gold. Copper futures rose nearly 3% after global inventory levels fell to the lowest in 7 months.
Grains traded mixed, but mostly higher. Soybeans were down fractionally, corn rose nearly 2% and wheat rose just over 1%.

Economic News
U.S. economy grew at 0.6% in Q1, the slowest in over 4 years.
Chicago PMI rose to 61.7, more than expected.