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(March 7, 2002) FINANCIAL INSTRUMENTS: U.S. TREASURY BONDS--Bond traders seemed to have changed their minds about the direction of bonds overnight. The problem in a nutshell is "Is the U.S. economy recovering, and if so how quickly and how well?" Some traders see a need for further rate cuts, while others are at the other end of the spectrum and expect the Fed to tighten. I myself don't see much reason for the Fed to do much of anything, as the market seems to be more or less in equilibrium, with no crash and burn activity going on, nor are recent reports that dire. Some see Friday's jobs data as being negative, encouraging the movement of capital out of the stock market and back into bonds. That said, bond traders remain negative and seem to see a rally as a selling opportunity. If the U.S. economy is truly on the rebound, perhaps they're right. There is still the "ugly surprise" factor, meaning is there another Enron lurking in the shadows. That said, it appears that bonds may have put in a high and that rallies are now a sale.

M. Steven Morgan

www.commodityreview.com

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