DJ Debt Futures Review: Weaker Trend Continues Ahead Of Jobs Data
KANSAS CITY (Dow Jones)--Debt futures closed lower Thursday but off
their weakest levels of the session, in a continuation of the recent price
trend and ahead of the release of key November jobs data on Friday.
March 10-year notes settled 4 ticks lower at 110-16.5, March 30-year
bonds were down 10 ticks at 109-21 and June Eurodollars were down 2.5 basis
points at 96.820.
"It's the continuation of the trend this week, which is a little bit of
weak pricing as the market realizes that the economy is doing OK here," said
Kathleen Stephansen, director of global economic research at Credit Suisse
First Boston in New York.
"This essentially means that the Fed will continue to normalize interest
rates, so it's pricing out this notion of a pause," she said.
In addition, a report by Greg Ip on the front page of Thursday's Wall
Street Journal suggesting that the Federal Reserve's view may be shifting
toward upside risks on inflation likely contributed to a portion of the
bearishness in the market.
The report noted that while some Fed officials said the upside risks of
inflation are rising and others believe the case for inflation is presently
weak, the fact that inflation risks are being introduced to an already choppy
market caused some nervousness among traders, Stephansen explained.
Federal Reserve Governor Ben Bernanke said Thursday afternoon that he
expects the U.S. jobs market to complete its recovery in the next year or so
without triggering a spike in inflation.
Speaking with reporters after a speech to the National Economists Club,
Bernanke said the Fed will need to be "exceptionally vigilant" about
inflation during the job market recovery. But "I have no reason to think it
(inflation) will rise significantly in the next couple of years."
While the bond market liked what it heard about inflation, Bernanke's
comments did nothing to dissuade ideas that the Fed would continue on its
rate-hiking path.
"We're just pricing in Fed rate hikes at every meeting going out for the
next three or four meetings," another analyst said earlier.
Debt futures prices at one point during the session crumbled to late-
summer/early fall lows on the selling pressure. March 10-years fell to their
lowest point since Aug. 23, while the March 30-year bond reached its lowest
point since Sept. 9.
On the short end of the yield curve, the two-year note hit prices not
seen since July 2002.
However, prices recovered in afternoon trading, and the Mar 10-year note
climbed back to equal its opening level of 110-16.5 by the settlement.
Technical traders may see bullish signs in Thursday's close due to the
fact that candlestick formations imply a bullish reversal is possible on the
Mar 10-year note, and a strong pullback from the day's lows augments that
pattern.
Additionally, a relative strength index near 24% indicates extremely
oversold conditions. An RSI under 30% is considered oversold.
In economic news, U.S. factory orders increased 0.5% in October, from a
revised unchanged reading in September. The report was stronger than
expectations for a modest 0.2% rise and prompted early selling in the debt
futures market.
Traders were surprised to learn earlier that U.S. jobless claims rose
25,000 to a one-month high of 349,000 for the week ended Nov. 27. The trade
had expected just a 7,000 rise in first-time jobless claims.
The debt market now readies itself for Friday's release of the November
employment report. Most traders and economists are expecting a payrolls
increase of around 200,000 or slightly higher, down from the 337,000 jobs
added in October.
-By Tom Sellen; Dow Jones Newswires; 913-322-5177;
[email protected]
(END) Dow Jones Newswires
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