U.S. 10-year Treasury bond prices shot higher after Standard & Poor's announcing it may cut credit ratings on billions of dollars worth of subprime bonds. The announcement led to massive buying of government bonds, sending prices soaring. Bonds typically rise on weakness and fall on strength, so it remains clear that today was dominated by widespread negative U.S. sentiment. The subprime mortgage business and a weak housing market has been weighing heavily on the U.S. economy in the last few months, as traders continue to try to gauge inflation compared with slowing growth and housing.

The dollar fell to record lows against the euro, and also dropped on the yen, on overall concern that the combined effects of the U.S. weak housing market and damaged mortgage lending sector could seriously damage the U.S. economy. Fed Chief Ben Bernanke said that inflation expectations "remain imperfectly anchored," prompting a further dollar decline and more losses. The euro fell against the yen today. Despite falling against the euro and yen, the dollar managed a bounce against the Canadian dollar, but fell on the British pound.

Crude oil rose nearly 1% on expectations that lower refinery capacity will lead to a gasoline shortage, just in time for the peak summer demand schedule. Yesterday, crude fell on similar news, on speculation that refinery shutdowns are a sign that U.S. demand is slowing. However, today oil was up again on supply fears. Natural gas futures rose over 4% on hot weather across the northern U.S.

Gold rose 0.3% today as the dollar fell against the euro. Gold usually moves inversely to the dollar and with oil; today, both factors led to gold rising and closing up on the day. Copper futures fell about 0.4% on declining China imports.

Grains traded higher today. Soybeans rose 2% and corn rose about 1.8%.

John Lee
Associate Editor
johnl@tradingmarkets.com