Mostly Calm Trading Ahead of Holidays

U.S. 10-year Treasury bonds continued to rally towards recent 3-year highs today, on underlying negative sentiment surrounding the U.S. economy and credit markets. Bear Stearns and Morgan Stanley both announced billion dollar losses this week, adding to concern that troubles are spreading, and there is no end in sight. Bonds typically rise on economic weakness and fall on strength, so it's clear that traders are positioned defensively heading into year-end.

The yen rallied today versus the dollar and the euro, on general consensus that credit losses will continue into the new year, and could possible derail the U.S. economy. The dollar was down on the euro, but most of the trading chatter surrounded yen strength. The so-called carry trade has been a deciding factor in yen movement in the past months, and looks to continue to do so. Traders have been buying yen on equity weakness and selling yen on equity strength.

Crude oil futures rallied about 0.5% today, despite rampant speculation that a U.S. economic slowdown will lead to slowing energy demand. Crude oil has fallen off recent all-time records on general negative sentiment towards the U.S. economy. Traders are betting that a recession would significantly dampen all energy demands, and crude has fallen back on account of those speculations. Natural gas futures were up slightly.

Gold futures were down about 0.4%. Gold normally trades inversely to the dollar and with crude oil, and today, traders focused on neither, and gold fell. Gold traders ignored dollar weakness and rising crude prices and sold gold, on no major news. Copper futures rallied about 0.4%.

Grains were higher today. Soybeans rallied about 0.3% and corn jumped 0.4%.