Bonds Notch Fresh Highs on U.S. Angst

U.S. 10-year Treasury bond prices hit new 3-year record highs today, on continued fears that the U.S. housing and credit troubles will derail the U.S. economy and usher in a recession. Traders buy bonds on economic weakness and sell bonds on strength, so it's very clear that traders have a negative outlook for the U.S. economy to start the new year.

The yen fell today versus the dollar and the euro, as traders sold the yen to invest in more risky assets. A slight equity bounce in the U.S. led to yen selling in the familiar carry-trade dynamic. Traders have been buying yen on equity weakness, and selling on strength, which is exactly what happened today. The euro fell against the dollar today, despite strength in the E-13 GDP numbers out today. The dollar is trading just off all-time record lows versus the euro. The U.S. dollar rallied against the Canadian dollar and the British pound today.

Crude oil futures fell 0.7% today, after the U.S. reported an increase in fuel stockpiles that was not expected by analysts. Oil hit all-time record highs at $100 a barrel last week on global demand worries, and oil does not show any real signs of moving lower. Today's price reaction to the inventory report had many traders calling a "rest day," as price consolidates before another rally. Natural gas futures were up moderately.

Gold futures rose fractionally today on pervasive U.S. economic weakness. Despite a good day for the dollar, bond prices showed that many traders are very negative on the U.S. situation. Gold rallies on perceived economic weakness, because traders buy gold as a safety. Gold has been rallying inversely to the dollar and with oil, which did not happen today. Traders bought gold today despite a decline in oil prices and a dollar rally.

The major indexes recovered from sizeable losses mid-day to stage a rebound after yesterday's market rout. Traders are focused on the upcoming earnings season, which looks to be bleak, and U.S. economic numbers, also expected to highlight economic weakness. The market rallied on no apparent reason, but traders attributed late positive sentiment to a positive outlook from DuPont. Click here to read the rest of today's Stock Market Recap.