US Treasuries bounce as jobs lack inflation danger
Fri Mar 4, 2005 09:31 AM ET
By Wayne Cole
NEW YORK, March 4 (Reuters) - U.S. Treasuries prices edged higher in choppy trade on Friday as the latest U.S. jobs report came in short of high expectations, tempering fears of more aggressive rate hikes from the Federal Reserve.
Non-farm payrolls rose 262,000 in February after a revised 132,000 gain in January. Median forecasts had been for a rise of 220,000 but recent strength in other employment indicators had much of the market looking for a far higher number.
The unemployment rate also surprised by rising to 5.4 percent, reversing January's decline and tempering worries that a tightening labor market might cause wage-driven inflation.
Indeed, hourly earnings were flat on the month when analysts had looked for a 0.2 percent rise, suggesting little wage pressure as yet.
"The inflation story embedded in this report is really not that bad," said Dominic Konstam, head of interest rate strategy at CSFB. "People are coming back into the labor force and wage pressures aren't showing, so this is generally good for bonds."
He looked for 10-year yields to track back down toward their 200-day moving average around 4.28 percent. Early Friday, the benchmark 10-year note (US10YT=RR: Quote, Profile, Research) was 7/32 firmer in price, lowering its yield to 4.35 percent from 4.38 percent on Thursday.
Earlier this week, yields hit three-month highs at 4.41 percent as the market priced in the risk that a super strong jobs report would push the Fed into hiking faster.
"The market had essentially priced for a rate rise at every Fed meeting this year," said Konstam. "This payrolls report suggests that's a bit excessive and maybe they will yet skip a meeting or two."
Eurodollars (0#ED:: Quote, Profile, Research) did firm after the report though Fed fund futures (0#FF:: Quote, Profile, Research) still predict rates will reach 3.25 percent by June, from the current 2.5 percent.
Expectations for more hikes kept yields on the two-year note (US30YT=RR: Quote, Profile, Research) at 3.57 percent, while those on the five-year note (US5YT=RR: Quote, Profile, Research) edged down to 3.99 percent from 4.01 percent.
The 30-year bond (US30YT=RR: Quote, Profile, Research) rose 8/32 in price, taking its yield to 4.72 percent from 4.74 percent on Thursday.
Still to come on Friday is the University of Michigan's final consumer sentiment index for February and January factory orders, though both will likely be overshadowed by the jobs report.
Economists in a Reuters survey expect the confidence index to dip to 94.5, from 95.5 in the final January report.
Factory orders are seen falling 0.1 percent and, as usual, analysts will focus on any revisions to durable goods orders.
There are also two Fed speakers on Friday. Fed Bank of Chicago President Michael Moskow speaks around 1:30 p.m. (1830 GMT, and Fed Bank of Minneapolis President Gary Stern at 1:50 p.m. (1850 GMT).