US Treasuries rally as jobs disappoint once more
(Updates prices)
By Pedro Nicolaci da Costa
NEW YORK, Dec 3 (Reuters) - Treasury debt prices soared on Friday after the latest employment figures suggested U.S. job creation continues to lag, soothing worries the Federal Reserve might raise interest rates more aggressively.
U.S. non-farm payrolls rose just 112,000 in November after a downwardly revised 303,000 gain in October. Analysts had predicted gains closer to 180,000, but many in the market had been betting on a much stronger result.
"People were building in higher and higher expectations going into this number -- the whisper number was somewhere around 250,000," said Andrew Brenner, head of fixed income at Investec U.S.
That camp turned out to be painfully wrong as the benchmark 10-year note <US10YT=RR> surged a whopping 1-12/32 to yield 4.24 percent, down sharply from 4.37 percent on Thursday.
While most analysts still think the Fed will raise interest rates at its next meeting on Dec. 14, many have begun to think officials might think twice about tightening further if the weak hiring trend persists.
The futures market seemed to agree, with fed funds<0#FF:> showing a better than 90 percent chance of a hike to 2.25 percent this month, while shaving the chance of hikes in February and March.
Investors were so obsessed with jobs that they barely blinked after the Institute for Supply Management reported a solid increase in its gauge of the services sector.
ISM's non-manufacturing index climbed to 61.3 in November from 59.8 in October, but the survey's components showed signs of weakness in both hiring and new orders.
"This is one of the days when nobody is really going to care because the employment report was definitely weak," said Cary Leahey, senior U.S. economist at Deutsche Bank.
If anything, the market rallied further after ISM report, with the two-year note <US2YT=RR> jumping 9/32 for a yield of 2.91 percent, compared with 3.05 percent on Thursday.
Five-year notes <US5YT=RR> were swept 26/32 lower to a yield of 3.57 percent while the 30-year bond <US30YT=RR> surged 2-7/32 to yield 4.91 percent from 5.07 percent.
Traders reported that investors in mortgage debt were also buying the market to hedge against the risk of mortgage prepayments as rates move lower.
In the separate household survey, the unemployment rate ticked down to 5.4 percent from 5.5 percent, but weekly earnings and the workweek were both softer than expected.
Still, Fed officials remained doggedly optimistic, with regional central bank presidents from Boston to Philadelphia sounding the usual chorus of upbeat remarks.
Traders also reported sizable Asian buying of Treasuries overnight and the latest figures from the Fed showed foreign central banks were still gobbling up U.S. government debt, albeit at a slower pace than early in the year.
The market has become increasingly worried that the slide in the dollar would encourage offshore central banks to diversify away from dollars rather than intervening to support the currency, leaving less money to be invested in treasuries.
The dollar's decline is also encouraging investors to sell Treasuries short and buy euro debt, hoping to gain on widening spreads and the divergence in currency rates.
((Reporting by Pedro Nicolaci da Costa; Editing by Dan Grebler; Reuters Messaging:
[email protected]; e-mail:
[email protected]; Tel: +1-646-223-6310))
--------------MARKET SNAPSHOT AT 1705 GMT ------------------
March T-Bond <USH5> 111-16/32 (+1-27/32)
March 10-year note <TYH5> 111-25/32 (+1-09/32)
Change vs Current
Nyk yield
Three-month bills<US3MT=RR> 2.17 (-0.02) 2.207
Six-month bills <US6MT=RR> 2.32 (-0.03) 2.380
Two-year note <US2YT=RR> 99-30/32 (+09/32) 2.912
Five-year note <US5YT=RR> 99-21/32 (+26/32) 3.574
10-year note <US10YT=RR> 100-03/32 (+1-13/32) 4.238
30-year bond <US30YT=RR> 106-22/32 (+2-07/32) 4.919
